Reference no: EM133068629
Burwood-Xgen is a company that producing solar panels. The company is analysing the possibility of introducing a new product, named 'Solar-2022', to the market. The 'Solar-2022' will adopt a new technology of using silicon solar modules. This new technology could largely increase the power conversion efficiency. The project is estimated to be of 5 years duration. The company's tax rate is 35%. The following is the additional information about the project:
-To produce this new product, Burwood-Xgen needs to introduce a new production line. This production line requires an initial investment of $7,500,000 in fixed asset which is fully depreciated over the five-year life of the project.
-The expected annual sales number of 'Solar-2022' is 20,000 units; the price is $680 per unit. Variable costs of production amount to $330 per unit.
-The introduction of the 'Solar-2022' will also decrease the company's sales of regular solar panels by 12,500 units per year; the regular solar panel has a unit price of $350 and unit variable cost of $160.
-To date, Burwood-Xgen had already spent $1,000,000 in research and development on the new silicon solar modules technology.Assess and justify whether or not each of the items ((i) - (iv) above) should be considered in the estimation of the incremental annual cash flow from operations for the 'Solar-2022' project. Calculate the after-tax incremental annual cash flow from operations.