We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year 1 2 3 4 5 Unit Sales 100,500 112,500 135,500 141,500 94,500 The new system will be priced to sell at $470 each. The cockroach eradicator project will require $2,100,000 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 $340, and total fixed costs are $2,400,000 per year. The equipment necessary to begin production will cost a total of $22 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. The relevant tax rate is 35%, and the required return is 16 %. Based on these preliminary estimates, what is the NPV of the project? (Enter the answer in dollars. Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV $ 32,496.5.

We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year 1 2 3 4 5 Unit Sales 100,500 112,500 135,500 141,500 94,500 The new system will be priced to sell at $470 each. The cockroach eradicator project will require $2,100,000 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 $340, and total fixed costs are $2,400,000 per year. The equipment necessary to begin production will cost a total of $22 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. The relevant tax rate is 35%, and the required return is 16 %. Based on these preliminary estimates, what is the NPV of the project? (Enter the answer in dollars. Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV $ 32,496.5.

Name: We project unit sales for a new household-use laser-guided cockroach
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Description: We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows:Year12345Unit Sales100, 500NPV112,500135,500141,50094,500The new system will be priced to sell at $470 each.The cockroach eradicator project wi

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...

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Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
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