Fireplaces Etc. is about to launch a new range of wood stoves, priced at $110 per unit.

Question:

Fireplaces Etc. is about to launch a new range of wood stoves, priced at $110 per unit. The unit cost of the wood stoves is $65. The firm expects to sell the wood stoves over the next 5 years. The venture will require an initial investment in plant and equipment of $25,000. Assume that the investment will be in an asset class with a CCA rate of 15%. At the end of 5 years, the plant and equipment will have a zero , but Fireplaces Etc. will continue to have other assets in this asset class. Sales projections for the wood stoves are as follows:
Year Unit Sales
1..................................300
2..................................350
3..................................400
4..................................500
5..................................500
The net working capital requirement (including the initial working capital needed in year 0) is expected to be 20% of the following year's sales. The firm's tax rate is 35%. Using a of 15%, calculate the of the project.
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