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Which will be depreciated straight line over the next 5 year

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Reference no: EM131184597

A manufacturing company is thinking of launching a new product.

The company expects to sell $950,000 of the new product in the first year and $1,500,000 each year thereafter.

Direct costs including labor and materials will be 45% of sales.

Indirect incremental costs are estimated at $95,000 a year.

The project requires a new plant that will cost a total of $1,500,000, which will be a depreciated straight line over the next 5 years.

The new line will also require an additional net investment in inventory and receivables in the amount of $200,000.

Assume there is no need for additional investment in building the land for the project. The firm's marginal tax rate is 35%, and its cost of capital is 10%.

Reference no: EM131184597

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