Considering entering the laser printing business

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Matrix Printers, Inc. is considering entering the laser printing business. An entirely new plant will be needed which will cost $1,500,000. Land for the plant will cost an additional $250,000. Both of these costs will be incurred immediately. The plant will be depreciated straight line over its 15 year life. (Remember the rule about depreciating land.) In addition to these costs an investment of $100,000 will be needed for working capital. The plant will generate sales of $300,000 per year and have associated expenses of $175,000. The firms marginal tax rate is 34%. The plant will be sold in 15 years for $700,000. What is the NPV of making this investment if the required rate of return is 16%. Should they make the investment?

Reference no: EM131924556

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