Question: Earp Brothers Inc is considering investing in a machine to

Earp Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the machine will be $820,000 and its economic life is five years. The machine will be fully depreciated by the straight-line method. The machine will produce 11,000 keyboards each year. The price of each keyboard will be $75 in the first year and will increase by 5 percent per year. The production cost per keyboard will be $20 in the first year and will increase by 7 percent per year. The project will have an annual fixed cost of $310,000 and will require an immediate investment of $130,000 in net working capital. The corporate tax rate for the company is 34 percent. If the appropriate discount rate is 11 percent, what is the NPV of the investment?

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  • CreatedOctober 01, 2015
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