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Determine if apple should continue with the cortland project

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Reference no: EM132403328

Suppose Apple has decided to introduce a smart TV, the Cortland.  Before they launch the Cortland, they conducted an analysis to see if the Cortland would be a desirable investment. The company estimated that it would sell 2.5 million Cortland's per year at a price of $2,200 for the next six years.

The initial capital outlay is determined to be $1.9 billion and a $800 million outlay in net working capital (NWC) would also be required. Assume that there is a one-time investment in NWC and that this will be recovered at the end of the project.

Assume that the equipment used will be depreciated using the MACRS 7 year schedule and that the equipment has a salvage value of zero. At the end of year 6, the equipment will be sold for its book value. Also, assume that that the tax rate is 21%.

Determine if Apple should continue with the Cortland project. Use the following capital budgeting techniques.

1. Payback period

2. Net present value

3. Internal rate of return

Reference no: EM132403328

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