Assume that plant and equipment will have salvage

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Reference no: EM132064316

ABC Co. requires a 15% rate of return on its capital, and the firm is in the 35% marginal tax bracket. The company is considering a new project that involves the introduction of a new product. This project has a 5 year life; afterwards the product will cease to exist. Given the following information:

Cost of new plant and equipment: 7,250,000

Unit sales: 80,000 (year 1), 110,000 (year 2), 110,000 (year 3), 80,000 (year 4), 80,000 (year 5)

Price per unit: $230

Variable costs per unit: $140

Fixed costs: $500,000 per year

Depreciation method: Straight line method over 5 years. Assume that the plant and equipment will have a salvage (market) value of $750,000 at the end of year 5.

Working capital requirements: there will be an initial working capital requirement of $500,000 at the start of the project. At the end of the second year of the project, the firm will need an additional $250,000 working capital injection. Finally, all working capital is liquidated at the termination of the project at the end of year 5.

Calculate the NPV for the project. (Round to 2 decimals)

Reference no: EM132064316

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