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What is the project npv for eleanor designs

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Reference no: EM132887686

Eleanor Designs is considering a new product line of "green" soft furnishings. The product requires purchase of a new machine at $95,000 with another $5,000 for installation. These two costs make up the base for 5-year straight line depreciation with no salvage value. They need to train someone to work with the new line, and the supplier suggests that it will costs in the neighborhood of $13,000. This cost is not capitalized, but it is a one-time initial investment cost.

  • Sales are expected to start at $50,000, go up to $75,000, then increase by 4% for the next three years, and something completely different will take place at that time. Operational costs are expected to start at $30,000 and increase by 3% in following years.
  • Net working capital will increase by 2% of sales per year.
  • The company expects the cost of new debt to be 10%. The tax rate is 30%. The risk-free rate is currently 5% and return on the market is 13%. The company has a beta of 1.8. Capital structure: 60% debt and 40% equity.

Problem 1: What is the project's NPV?

Reference no: EM132887686

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