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The following information pertains to a proposed new six-year venture for a firm:
Pre-startup advertising and marketing expenses $ 80,000Pre-startup cost of new equipment (assume 5-year SL) $200,000Investment in market research undertaken last year $100,000Sales volume in units (years 1 - 3) 50,000Sales volume in units (years 4 - 6) 60,000Selling price per unit $ 15Gross margin on foregone current product sales (years 1 - 6) $ 50,000Cost to manufacture (per unit) $ 8Incremental cash expenses (years 1 - 6) $200,000Corporate tax rate 34%Corporate cost of capital 14%Permanent working capital required at outset, to be restored to cash at the end of the project's life $ 50,000
a. Develop the cash flows for the project.b. Calculate the net present value of the venture.
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