Do the capital budgeting analysis for this project

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Reference no: EM131903993

Your company has been doing well, reaching $1 million in earnings, and is considering launching a new product. Designing the new product has already cost $500,000.

The company estimates that it will sell 800,000 units per year for $3 per unit and variable non-labor costs will be $1 per unit. Production will end after year 3. New equipment costing $1 million will be required. The equipment will be depreciated to zero 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 $300,000. The new product will require the working capital to increase to a level of $380,000 immediately, then to $400,000 in year 1, in year 2 the level will be $350,000, and finally in year 3 the level will return to $300,000. Your tax rate is 35%. The discount rate for this project is 10%. Do the capital budgeting analysis for this project and calculate its NPV.

Reference no: EM131903993

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