A three-year project will cost $60,000 to construct. This will be depreciated straight-line to zero over the three-year life. The price per unit sold is $20 and the variable cost per unit sold is $10. Fixed costs are $30,000 per year. The project will require an investment of $10,000 upfront for net working capital. You expect to sell 7,000 units per year. The asset pool will be closed after three years. In addition to the BASIC INFORMATION, you find that a salvage company will pay you $10,000 for the assets at the end of year 3. Compute the NPV assuming a required return of 15% and a tax rate of 30%.

Answer rating: 100% (QA)

To compute the NPV Net Present Value we need to calculate the cash flows for each year and then disc... View the full answer