Reference no: EM132571144

We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows:

Year      Unit Sales

1            96,500

2            108,500

3              131,500

4              137,500

5                 90,500

The new system will be priced to sell at $430 each.

The cockroach eradicator project will require $2,100,000 in net working capital to start, and total net working capital will rise to 15% of the change in sales. The variable cost per unit is $300, and total fixed costs are $1,600,000 per year. The equipment necessary to begin production will cost a total of $18 million. This equipment is mostly industrial machinery and thus qualifies for CCA at a rate of 20%. In five years, this equipment will actually be worth about 20% of its cost.

Question 1: The relevant tax rate is 35%, and the required return is 14%. Based on these preliminary estimates, what is the NPV of the project?