Firm is considering investing in new product

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Reference no: EM132031150

A firm is considering investing in a new product with a five-year life. To do this it will need to buy new equipment that costs $10 million and that has a salvage value of $500,000. This equipment depreciates straight-line over its five-year life. The product sells at $20 per unit. Sales are expected to start at 400,000 units and to grow at the rate of 5% per year. The variable cost per unit is $12. The firm’s tax rate is 40 and the firm requires an investment of $20,000 in working capital each year. Find the NPV, IRR, PI using a required return of 10%.

Reference no: EM132031150

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