Requires an initial capital expenditure for an asset costing

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Consider a project that lasts three years and requires an initial capital expenditure for an asset costing $250,000. You can depreciate the asset in a straight line over five years, although you plan to sell the asset after the three years for $150,000. You expect the project to generate 2,000 units per year (for each of the three years of the project). In year 1 you expect to be able to sell the units for $80 each, but you expect prices to rise to $90 in year 2 and $100 in year 3. You expect operating costs to remain constant at $100,000 per year. Finally, the project requires an immediate working capital investment of $250,000 which is recovered after two years. To calculate these estimates, you conducted market research which cost you $10,000. What is the NPV of the project? Assume a 30% tax rate and the opportunity cost of capital is 6%.

Reference no: EM131444418

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