Aeroflex Technologies, Inc. currently manufactures after-market string trimmer blades and is considering expansion into the manufacturing of their own proprietary electric trimmers. Based on a preliminary market analysis, company management believes the product will be successful at $50 per unit, and expects to sell 15,000 units in the first year, 22,000 units in year 2, 30,000 units in year 3, 40,000 in year 4, and 45,000 in year 5. 

Further, the company will need to invest approximately $4,085,000 in new equipment, and will lease a new facility (the rent is included in the fixed cost estimate). The equipment will be depreciated to zero using 5-year MACRS. The estimated variable cost per unit is $15 and the fixed costs are expected to be approximately $160,000 per year. Management expects the production to continue indefinitely, and cash flows after year 5 are expected to grow at a rate commensurate with average inflation of about 2.8%. Net working capital required is expected to be approximately 10% of sales each year. The Company's estimated marginal tax rate is 28%. (Assume zero taxes if there is a negative pretax income)rn

Answer rating: 100% (QA)

Year 1 Sales 15000 units 50unit 750000 Variable Costs 15000 units 15unit 225000 Fixed Costs 160000 D... View the full answer