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Cost of new plant and equipment: $ 7,900,000




Question;We are considering the introduction of a new product.;Currently we are in the 34% tax bracket with a 15% discount;rate. This project is expected to last five years and then;because this is somewhat of a fad project, it will be;terminated. The following information describes the new;project;Cost of new plant and equipment: $ 7,900,000;Shipping and installation costs: $ 100,000;Unit sales;Sales price per unit: $300/unit in years 1?4 and;$260/unit in year 5.;Variable cost per unit: $180/unit;Annual fixed costs: $200,000 per year;Working capital requirements: There will be an initial;working capital requirement of $100,000 just to get;production started. For each year, the total investment in;net;working capital will be equal to 10% of the dollar value of;sales for that year. Thus, the investment in working capital;will;increase during years 1 through 3, then decrease in year 4.;Finally, all working capital is liquidated at the termination;of the;project at the end of year 5.;Depreciation method: Straight-line over 5 years;assuming the plant and equipment have no salvage value;after 5 years.


Paper#43977 | Written in 18-Jul-2015

Price : $22