Do the capital budgeting analysis for project

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Your company has been doing well, reaching $1.06 million in annual earnings, and is considering launching a new product. Designing the new product has already cost $478,000. The company estimates that it will sell 768,000 units per year for $2.95 per unit and variable non-labor cost will be $1.03. Production will end after year 3. New equipment costing $1.09 million will be required. The equipment will be depreciated using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $297,000. The new product will require the working capital to increase to a level of $378,000 immediately, then to $400,000 in year 1, $348,000 in year 2, and finally return to $297,000. Your tax rate is 35%. The discount rate for this project is 10.1%. Do the capital budgeting analysis for this project and calculate its NPV.

Reference no: EM13907106

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