Reference no: EM133020294

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?