Reference no: EM132910952
Question - Evergreen company is investigating the feasibility of buying a new production line producing a new product. They project unit sales as in the below table, and they project price per unit to be $120 per unit at the beginning. And when competition catches up after 3 years (in the 4th year), they anticipate that the price would drop to $110.
This project requires $20,000 in net working capital at the beginning. Subsequently, total net working capital at the end of each year would be about 15% of total sales for that year. The variable cost per unit is $60, and total fixed costs are $25,000 per year.
It costs about $900,000 to buy the equipment necessary to begin production. This investment is primarily in industrial equipment and falls in Class 8 with a CCA rate of 20%. The equipment will actually be worth about $150,000 in eight years. The relevant tax rate is 40%, and the required return is 15%.
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Years
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Unit Sales
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1
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3000
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2
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5000
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3
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6000
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4
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6,500
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5
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6000
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6
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5000
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7
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4000
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8
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3000
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Based on the above information and assuming that the asset class is CLOSED calculate the NPV.
Assume that the asset class will remain OPEN, calculate the NPV?
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