HuaWei Ltd manufactures a variety of electrical equipment. Project P30 is a new product that HuaWei is
Question:
HuaWei Ltd manufactures a variety of electrical equipment. Project P30 is a new product that HuaWei is considering introducing to the market. The company's finance team has collected a lot of information about the project below: (Note: You may or may not need to use all this information, use only the information that is relevant.)
The company paid a consulting firm $600,000 last year for a test marketing analysis, as part of the evaluation.
The HuaWei will have to purchase a new machine to produce the electrical products. The machine has an upfront cost of $5,000,000 at Year 0.
The machine will be depreciated on a straight-line basis over 4 years to a zero balance. The company expects that the machine will be sold for $60,000 when the project is completed at Year 4.
At Year 0, the net working capital will increase by $150,000. In the final year of the project (Year 4), net working capital will be fully recovered.
Forecasted sales quantity, selling price and production costs of Project ABC are presented below.