Reference no: EM132505176

This case continues following the new project of the WePROMOTE Company, that you and your partner own. WePROMOTE is in the promotional materials business. The project being considered is to manufacture a very unique case for smartphones. The case is very durable, attractive and fits virtually all models of smartphone. It will also have the logo of your client, a prominent, local company and is planned to be given away at public relations events by your client.

As we know from the prior case involving this company, more details of the project become apparent and with more precision and certainty.

The following are the final values to the data:

1. The cost of the equipment will be $70,000 and this cost is incurred prior to any cash is received by the project.
2. The expected annual cash revenue of the project will be $30,000. 
3. The expected annual cash outflows (expenses/costs) are estimated at being $11,000, excluding depreciation.
4. Your tax rate is 30% and you plan to depreciate the equipment on a straight-line basis for the life of the equipment. The discount rate you are assuming is 6%.
5. After 5 years the equipment will stop working and there will be no salvage value.

Papers will be assessed on the following criteria:

Question 1: Provide the final, accurate NPV calculations.

Question 2: A narrative on how the NPVs were calculated. The narrative should include how the data relating to depreciation and its tax consequences affect the cash flow of the project. Include a table with your analysis to present your work.

Question 3: Provide a conclusion on whether this business opportunity should be pursued.