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Should mmcc proceed with this new project

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Reference no: EM132658242

The Majestic Mulch Company (MMCC)New line of power mulching tools. Unit sales are as follows for years

Yr Sales

1 3000

2 5000

3 6000

4 6500

5 6000

6 5000

7 4000

8 3000

  • The power mulcher will sell for $120 for three years, and then the price will drop to $110. It requires $20,000 in net working capital at the start. Subsequently, NWC will be 15% of sales for that year. Variable cost per unit is $60 and total fixed costs are $25,000 per year. Initial cost of equipment is $800,000. The equipment qualifies for 7 years MACRS depreciation and MACRS is applied to the entire cost. The equipment will be worth 20% of its cost in eight years. The relevant tax rate is 21% and the required return is 15%. NWC recovery will occur in year 8.

Problem 1: Should MMCC proceed with this new project?

Reference no: EM132658242

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