Company is considering manufacturing new product

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A company is considering manufacturing a new product. They would be leasing a building at a cost of $20,000 per year. The equipment would cost $300,000 and an extra $100,000 would be needed in working capital. The annual expenses for material, labor and all other overhead is expected to be $500,000 per year. The annual revenue from this new product is expected to be $600,000 for the first year and increase by $20,000 each year after the first year. The company expects to produce this product for the next ten years. After that the equipment can be sold for $20,000 and the entire working capital would also be recovered. If the MARR is 20% per year compounded yearly, should the company invest in the new product?

Reference no: EM131289639

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