Decide to start selling a product called perri-air

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Reference no: EM132255855

Given the recent problems with air population in major cities, you decide to start selling a product called “Perri-Air,” which is canned air. You already spent $25,000 developing the can design and marketing materials.

a. Note that the $25,000 you already spent will not come back to you no matter what happens. What is this cost? Do we consider it in the cash flow computation?

b. You need to invest $100,000 in in the machinery. Your project lasts for 5 years. Assume you depreciate to zero at the end. How much is the depreciation per year if you use the straight line depreciation?

c. You need to make an investment in working capital of $300,000 today, What is the total cash flow today?

d. If you sell the canned air, you plan on selling each can for $2 and believe you can sell 1 million cans per year. The variable cost per can is $1.75. The fixed costs is $175,000 per year. Your tax rate is 30%. For each year, compute EBIT, Taxes, and Net Income. (Remember the depreciation)

e. Working capital will remain constant over the length of the project. You will fully recover the working capital investment at the end of the project. What are the cash flows for Year 1 – Year 5 respectively?

f. Your discount rate is 8%, what is the NPV of the project? Should you start it?

Reference no: EM132255855

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