The director of RCM inc. plans to launch a new product. The initial investment in equipment and other fittings is $800,000. It's been a while since management thinking of launching this new product. 

They made several trips to different cities to understand the potential demand, and finally decided to launch this product. These trips have cost the company about $50,000 so far. The project will have a lifetime estimated at 5 years. First year income should be $600,000, and income should be remain the same for the duration of the project. The operating costs of the project are estimated at $200,000 per year. If the project is undertaken, the total investment in net working capital will increase by $100,000 at the start of the project, but the company will recover 50% of its investment in net working capital at the end of the 5th year. The tax rate is 30%, and the amortization rate in cost of capital is 20%. The equipment can be sold at the end of the project for $150,000. The appropriate discount rate for the project is 9%.

Calculate the NPV to see if the company should undertake this project or not.

Answer rating: 100% (QA)

The NPV of the project can be calculated using the following formula NPV Sun ... View the full answer