Reference no: EM132961140

We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows:

Year Unit Sales

year1 = 94,500

year2= 106,500

year3= 129,500

year4= 135,500

year5= 88,500

• The new system will be priced to sell at $410 each.
• The cockroach eradicator project will require $1,700,000 in net working capital to start, and total net working capital will rise to 15% of the change in sales. The variable cost per unit is $280, and total fixed costs are $1,200,000 per year. The equipment necessary to begin production will cost a total of $16 million. This equipment is mostly industrial machinery and thus qualifies for CCA at a rate of 20%. In five years, this equipment will actually be worth about 20% of its cost.

Problem 1: The relevant tax rate is 35%, and the required return is 16%. Based on these preliminary estimates, what is the NPV of the project?