Reference no: EM132169007

Your company has been doing? well, reaching $ 1million in? earnings, and is considering launching a new product. Designing the new product has already cost $500,000. The company estimates that it will sell 800,000 units per year for $ 3.00 per unit and variable? non-labor costs will be $ 1.00 per unit. Production will end after year 3. New equipment costing $ 1 million will be required. The equipment will be depreciated to zero using the? 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $300,000. The new product will require the working capital to increase to a level of $380,000 ?immediately, then to $400,000 in year? 1, $350,000 in year? 2, and finally return to $300,000. Your tax rate is 35%. The discount rate for this project is 10%. Do the capital budgeting analysis for this project and calculate its NPV.

Note?: Assume that the equipment is put into use in year 1.