Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows:
Year
Unit Sales
93,500
105,500
128,500
2
3
4
134,500
87,500
5
The new system will be priced to sell at $390 each.
The cockroach eradicator project will require $1,500,000 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 $270, and total fixed costs are $1,000,000 per year. The equipment necessary to
begin production will cost a total of $20 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 14%. 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
$
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Transcribed Image Text:We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year Unit Sales 93,500 105,500 128,500 2 3 4 134,500 87,500 5 The new system will be priced to sell at $390 each. The cockroach eradicator project will require $1,500,000 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 $270, and total fixed costs are $1,000,000 per year. The equipment necessary to begin production will cost a total of $20 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 14%. 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 $
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