Sony International has an investment opportunity to produce a new stereo HDTV. The required investment on January

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Sony International has an investment opportunity to produce a new stereo HDTV. The required investment on January 1 of this year is $85 million. The firm will depreciate the investment to zero using the straight-line method over four years. The investment has no resale value after completion of the project. The firm is in the 34 percent tax bracket. The price of the product will be $515 per unit, in real terms, and will not change over the life of the project. Labor costs for Year 1 will be $19.25 per hour, in real terms, and will increase at 2 percent per year in real terms. Energy costs for Year 1 will be $7.35 per physical unit, in real terms, and will increase at 3 percent per year in real terms. The inflation rate is 4 percent per year. Revenues are received and costs are paid at year end. Refer to the table below for the production schedule. YEAR 3 YEAR 2 YEAR 4 YEAR 1 Physical production, in units Labor input, in hours Energy input, in physical units 185,000

The real discount rate for the company is 8 percent. Calculate the NPV of this project.

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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Corporate Finance Core Principles and Applications

ISBN: 978-1259289903

5th edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan

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