Considering the production of hockey skates

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Hornqvist Industries is considering the production of hockey skates. The new skates would have a price of $159 today. The equipment necessary for production will cost $18.5 million and will be depreciated on a 10-year MACRS schedule. The projected sales are 40,000, 48,000, 53,000, 60,000, and 65,000 pairs per year for the next five years, respectively. Variable costs will be $35 per pair and fixed costs are estimated at $2.5 million per year, both in today’s dollars. The company expects that the project will continue indefinitely and the cash flow will increase at a .5 percent real rate. The company has a tax rate of 38 percent and a nominal required return of 11 percent on new product lines. What is the NPV of the new skates?

Reference no: EM132001499

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