The GIANT Company investigated the marketing potential of dark colored plane wings. people at GIANT complained about the cost of the test marketing, which was $250,000.In  any  case,  the  GIANT company  is  now  considering  investing  in  a  machine  to  produce  dark wings. 

The dark wings would be manufactured in a building owned by the firm and located near NEWORLEANS This building, which is vacant, and the land can be sold for $1,500,000 after taxes  .Working  with  his  staff,  Meadows  is  preparing  an  analysis  of  the  proposed  new  product.  He summarized his  assumptions  as follows:  the  cost of  the  wing machine  is $1,000,000 and  it is expected to last seven years (use the MACRS depreciation). At the end of seven years, the machine will  be  sold  at  a  price  estimated  to  be $300,000.  

Production  by year  during  the  seven‐year life  of  the machine is expected to be as follows: 500 units, 800 units, 1200 units, 100 units, 600units.,200units ,50 units The price of wing will be $2000. Production cost will be $1000 dollars per unit. The appropriate incremental corporate tax rate is 35%.Management and determines that an initial investment (at year 0) in net working capital of$10,000 is required. 

Subsequently, net working capital at the beginning of each year will be equal to10% of sales for that year. In the final year of the project, net working capital would decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the project’s life .If discount rate IS 13.5%

USING THE EXCEL

CALCULATE THE INITIAL INVESTMENT

CALCULATE THE PERATING CASH FLOW

CALCULATE THE TERMINAL VALUE

Calculate the

NPV

Profitability index

Pay pack period

Answer rating: 100% (QA)

1 The initial investment cost of the wing machine 1000000 Land cost shall not be added because it is sunk cost initial working capital requiremnet 100... View the full answer