5. A product line can ell 100,000 products per year for 4 years (after which time...

 

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5. A product line can ell 100,000 products per year for 4 years (after which time this project is expected to shut down). The product will sell for $5 each, with variable costs of $3 for each one produced, while annual fixed costs associated with production will be $90,000. In addition, there will be a $335,000 initial expenditure associated with the purchase of new production equipment. It assumed that this initial expenditure will be depreciated using the SL method over 4 years. The before-tax salve is $25,000. This project will also require a one-time initial investment of $31,000 in net working capital associated with inventory. The required rate of return is 10%. Tax rate is 21%. What is the NPV? 6. Firm ABC is considering investing in a project to reduce costs by $68,000 annually. The equipment costs $230,000, had a 4-year life (will be depreciated as a 3-year MACRS asset: 33% for the first year, 45% for the second year, and 15% for the third year), requires $5,000 initial cost in net working capital, and has a salvage value of $39,000. The discount rate is 10%. Tax rate is 21%. What is the NPV? 7. A product line costs $79,000, and has an economic life of 4 years. Its depreciation schedule follows the 3-year MACRS as follows: 33% for the first year, 45% for the second year, and 15% for the third year. Purchase of the product line would require only an initial increase in net working capital of $2,000. The product line would increase the firm's sales by $45,000 per year but would also increase operating costs by $23,000 per year. The product line is expected to be used for 4 years and then be sold for $20,057. The firm's marginal tax rate is 21 percent. What is the NPV? 5. A product line can ell 100,000 products per year for 4 years (after which time this project is expected to shut down). The product will sell for $5 each, with variable costs of $3 for each one produced, while annual fixed costs associated with production will be $90,000. In addition, there will be a $335,000 initial expenditure associated with the purchase of new production equipment. It assumed that this initial expenditure will be depreciated using the SL method over 4 years. The before-tax salve is $25,000. This project will also require a one-time initial investment of $31,000 in net working capital associated with inventory. The required rate of return is 10%. Tax rate is 21%. What is the NPV? 6. Firm ABC is considering investing in a project to reduce costs by $68,000 annually. The equipment costs $230,000, had a 4-year life (will be depreciated as a 3-year MACRS asset: 33% for the first year, 45% for the second year, and 15% for the third year), requires $5,000 initial cost in net working capital, and has a salvage value of $39,000. The discount rate is 10%. Tax rate is 21%. What is the NPV? 7. A product line costs $79,000, and has an economic life of 4 years. Its depreciation schedule follows the 3-year MACRS as follows: 33% for the first year, 45% for the second year, and 15% for the third year. Purchase of the product line would require only an initial increase in net working capital of $2,000. The product line would increase the firm's sales by $45,000 per year but would also increase operating costs by $23,000 per year. The product line is expected to be used for 4 years and then be sold for $20,057. The firm's marginal tax rate is 21 percent. What is the NPV?