# Question

Sony International has an investment opportunity to produce a new stereo HDTV. The required investment on January 1 of this year is $75 million. The firm will depreciate the investment to zero using the straight-line method over four years. The investment has no resale value after completion of the project. The firm is in the 34 percent tax bracket. The price of the product will be $450 per unit, in real terms, and will not change over the life of the project. Labor costs for Year 1 will be $18.50 per hour, in real terms, and will increase at 2 percent per year in real terms. Energy costs for Year 1 will be $6.40 per physical unit, in real terms, and will increase at 3 percent per year in real terms. The inflation rate is 4 percent per year. Revenues are received and costs are paid at year-end. Refer to the table below for the production schedule.

The real discount rate for Sony is 8 percent. Calculate the NPV of this project.

The real discount rate for Sony is 8 percent. Calculate the NPV of this project.

## Answer to relevant Questions

J. Smythe, Inc., manufactures fine furniture. The company is deciding whether to introduce a new mahogany dining room table set. The set will sell for $6,500, including a set of eight chairs. The company feels that sales ...Consider a four-year project with the following information: initial fixed asset investment = $430,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $29; variable costs = $18; fixed ...In the previous problem, suppose the scale of the project can be doubled in one year in the sense that twice as many units can be produced and sold. Naturally, expansion would only be desirable if the project were a success. ...In each of the following cases, find the unknown variable. Ignore taxes. Refer back to Table 10.2 . What range of returns would you expect to see 68 percent of the time for long-term corporate bonds? What about 95 percent of the time? Table 10.2Post your question

0