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The following information describes the new project: Cost of new plant and equipment: $ 7,900,000

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Question;I need to figure out the initial outlay for this problem:We are considering the introduction of a new product.Currently we are in the 34% tax bracket with a 15% discountrate. This project is expected to last five years and then,because this is somewhat of a fad project, it will beterminated. The following information describes the newproject:Cost of new plant and equipment: $ 7,900,000Shipping and installation costs: $ 100,000Unit sales:Year Units Sold1 70,0002 120,0003 140,0004 80,0005 60,000 Sales price per unit: $300/unit in years 1?4 and$260/unit in year 5.Variable cost per unit: $180/unitAnnual fixed costs: $200,000 per yearworking capital requirements: There will be an initialworking capital requirement of $100,000 just to getproduction started. For each year, the total investment in networking capital will be equal to 10% of the dollar value ofsales for that year. Thus, the investment in working capital willincrease during years 1 through 3, then decrease in year 4.Finally, all working capital is liquidated at the termination of theproject at the end of year 5.Depreciation method: Straight-line over 5 yearsassuming the plant and equipment have no salvage valueafter 5 years

 

Paper#44181 | Written in 18-Jul-2015

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