It is 2011. The TW concept was developed at an R&D cost of $1,000,000 incurred from 2006-
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- It is 2011. The TW concept was developed at an R&D cost of $1,000,000 incurred from 2006- 2010. Producing the TW will require the purchase of a new machine costing $2,000,000. The new machine will last for 15 years. After 15 years it will be scrapped for $50,000.
- For tax purposes, the machine can be depreciated to $0 over 10 years using the straight line method. In addition, TW’s will be painted using 30% of currently idle capacity (70% of the capacity is already being used to paint Regular Widgets) of an existing painting machine. The painting machine costs $30,000 per year to operate (regardless of how much it is used). Operating costs per year are $40,000 and sales are $400,000. Sales of Regular Widgets fall by $20,000 for t=1 to t=15 due to TW. The opportunity cost of capital is 10%. An inventory of $200,000 is needed over the life of the project
- starting at t=0. The tax rate is 40%.
- Calculate the NPV of the TW project
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
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