A manufacturing company is thinking of launching a new product. The company expects to sell $950000 of the new product in the first year and $1500000 each year thereafter. Direct costs including labor and materials will be 45% of sales. Indirect incremental costs are estimated at $95000 a year. The project requires a new plant that will cost a total of $1500000 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 $200000.
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%.
To receive full credit on this assignment please show all work including formulae and calculations used to arrive at financial values.
Assignment Guidelines
Your submitted assignment (130 points) must include the following:
Grading
You will be graded on the accuracy of your value calculations as well as your demonstrated understanding of payback periods net present value and cash flows.
This assignment will be assessed using the rubric provided here.
Please submit your assignment.