Required rate of return for projects

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Reference no: EM131021124

National Foods is considering producing a new candy, Nasty-As-Can-Be. National has spent two years and $450,000 developing this product. National has also test marketed Nasty, spending $100,000 to conduct consumer surveys and tests of the product in 25 states.Based on previous candy products and the results in the test marketing, management believes consumers will buy 4 million packages each year for ten years at 50 cents per package. Equipment to produce Nasty will cost National $1,000,000, and $300,000 of additional net working capital will be required to support Nasty sales. National expects production costs to average 60% of Nasty's net revenues, with overhead and sales expenses totaling $525,000 per year. The equipment has a life of ten years, after which time it will have no salvage value. Working capital is assumed to be fully recovered at the end of ten years. Depreciation is straight-line (no salvage) and National's tax rate is 45%. The required rate of return for projects of similar risk is 8%

Reference no: EM131021124

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