Lisowski Laptops (LL) is examining the possibility of manufacturing and selling a notebook computer that is compatible
Question:
Lisowski Laptops (LL) is examining the possibility of manufacturing and selling a notebook computer that is compatible with PC and Macintosh systems and that can receive television signals. Its estimated selling price is $2,500. Variable costs (supplies and labor) will equal $1,500 per unit, and fi xed costs per year would approximate $200,000. Up-front investments in plant and equipment will total $270,000, which will be straight-line depreciated over three years. The initial working capital investment will be $100,000 and will rise proportionately with sales. Bill, the CEO, forecasts laptop sales will be 50,000 units the first year, 60,000 units the second, and 45,000 units the third year, at which time product life cycles would require closing down production of the model. At that time, the market value of the project’s assets will be about $70,000. LL’s tax rate is 40 percent and its required return on projects such as this one is 17 percent. Should Lisowski Laptops off er the new computer?
Step by Step Answer:
Introduction to Finance Markets, Investments and Financial Management
ISBN: 978-1119398288
16th edition
Authors: Ronald W. Melicher, Edgar A. Norton