What is the NPV, IRR and Discounted PayBack

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Question - The ABC Co. Ltd wants to add an additional production line. To DO IT, the company must spend $120,000 to expand its current building and purchase $1.4 million in new equipment. The building expansion has a salvage value of $96,000 and the equipment has a salvage value of $390,001. This new line is expected to produce 200,000 units with a projected sales price of $4.65 per unit and a variable cost of $2.90 a unit. The company has spent $10,000 R&D fees on the new production line. Gross profit from existing products is expected to decline by $29,000 a year as a result of this addition. Fixed costs are $42,000 annually. The net working capital requirement is90% of the fixed costs and will be fully recovered at the ending year of the project. The company uses straight-line depreciation over the life of the product and requires a 15% rate of return. Taxes are incurred at a rate of 34%. The life of the project is five years. What is the NPV, IRR and Discounted PayBack of the project? Show the breakdown of the cash flows and all the steps.

Reference no: EM132988882

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