Your firm is considering launching a new product. The project will cost $720,000 to initiate, have...

 

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Your firm is considering launching a new product. The project will cost $720,000 to initiate, have a four year lifespan, and a salvage value of $80,000. Sales are projected at 190 units per year; the price per unit will be $21,000, variable costs per unit are $15,500, and fixed costs are $640,000 per year. $50,000 worth of working capital will need to be invested immediately but this amount will be recovered at the end of the project. The required rate of return on the project is 14%, the corporate tax rate is 35% and the CCA rate on the assets required is 20%. a) Should you initiate the project? b) What minimum level of sales is required each year for the project to be profitable? Your firm is considering launching a new product. The project will cost $720,000 to initiate, have a four year lifespan, and a salvage value of $80,000. Sales are projected at 190 units per year; the price per unit will be $21,000, variable costs per unit are $15,500, and fixed costs are $640,000 per year. $50,000 worth of working capital will need to be invested immediately but this amount will be recovered at the end of the project. The required rate of return on the project is 14%, the corporate tax rate is 35% and the CCA rate on the assets required is 20%. a) Should you initiate the project? b) What minimum level of sales is required each year for the project to be profitable?

Answer rating: 100% (QA)

a Should you initiate the project To determine if we should initiate the project we will calculate t... View the full answer