Yang Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the

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Yang Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the machine will be $1.5 million, and its economic life is five years. The machine will be fully depreciated by the straight-line method. The machine will produce 40,000 keyboards each year. The price of each keyboard will be $49 in the first year and will increase by 3 percent per year. The production cost per keyboard will be $19 in the first year and will increase by 4 percent per year. The project will have an annual fixed cost of $450,000 and require an immediate investment of $650,000 in net working capital. The corporate tax rate for the company is 21 percent. If the appropriate discount rate is 11 percent, what is the NPV of the investment?

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Corporate Finance

ISBN: 9781260772388

13th Edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe

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