Sony International has an investment opportunity to produce a new 100-inch widescreen TV. The required investment on
Question:
Sony International has an investment opportunity to produce a new 100-inch widescreen TV. The required investment on 1 January of this year is $32 million. The firm will depreciate the investment to zero using the straight-line method over 4 years. The investment has no resale value after completion of the project. The firm is in the 34 per cent tax bracket. The price of the product will be $400 per unit, in real terms, and will not change over the life of the project. Labour costs for year 1 will be $15.30 per hour, in real terms, and will increase at 2 per cent per year in real terms. Energy costs for year 1 will be
$5.15 per physical unit, in real terms, and will increase at 3 per cent per year in real terms.
The inflation rate is 5 per cent per year. Revenues are received and costs are paid at yearend.
Refer to the following table for the production schedule:
The real discount rate for Sony is 8 per cent. Calculate the NPV of this project.
Step by Step Answer:
Corporate Finance
ISBN: 9780077173630
3rd Edition
Authors: David Hillier, Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, Jeffrey F. Jaffe