Judge Industries p$/$c$.,$ based in the Silicon Fen area, a well$-$known technology cluster in

the city of Cambridge, United Kingdom, is considering an investment project to produce

a new advanced robot for use in hospitals. The market for this robot is growing quickly.

The company bought some land three years ago for $1$ million in anticipation of using it

as a toxic waste dump site but has recently hired another company to handle all toxic

materials. This land is now available and can be used as the production site for the

project. Based on a recent appraisal, the company believes it could sell the land for

$800,000$ on an after$-$tax basis.

$($TURN OVER$)$

The company also hired a marketing firm to analyze the robot market, at a cost of

$125,000.$ An excerpt of the marketing report is as follows: "The robot industry will have

a rapid expansion in the next four years. With the technology that Judge Industries

possesses, we feel that the company will be able to sell $2,900$; $3,800$; $2,700$; and $1,900$

units of this new robot each year for the next four years, respectively. Again, capitalizing

on Judge Industries' technology, we feel that a premium price of $700$ can be charged

for each robot. Because the technology will be obsolete, we feel at the end of the four$-$

year period, sales should be discontinued."

Judge Industries plc$.$ feels that the fixed cost for the project will be $350,000$ per year,

and variable costs are $15$ percent of sales. The equipment necessary for production will

cost $3\mathrm{.}8$ million and will be depreciated according to the schedule below. At the end of

the project, the equipment will be scrapped for $400,000.$ An initial net working capital of

$120,000$ will be required before the production starts. The company has a $38$ percent

tax rate, and the required rate of return on the project is $15$ percent.

What is the NPV of the project? Assume the company has other profitable projects.

Annual depreciation as a percentage of the cost of initial investmentJudge Industries plc$.,$ based in the Silicon Fen area, a well$-$known technology cluster in

the city of Cambridge, United Kingdom, is considering an investment project to produce

a new advanced robot for use in hospitals. The market for this robot is growing quickly.

The company bought some land three years ago for $1$ million in anticipation of using it

as a toxic waste dump site but has recently hired another company to handle all toxic

materials. This land is now available and can be used as the production site for the

project. Based on a recent appraisal, the company believes it could sell the land for

$800,000$ on an after$-$tax basis.

The company also hired a marketing firm to analyze the robot market, at a cost of

$125,000.$ An excerpt of the marketing report is as follows: $$The robot industry will have

a rapid expansion in the next four years. With the technology that Judge Industries

possesses, we feel that the company will be able to sell $2,900$; $3,800$; $2,700$; and $1,900$

units of this new robot each year for the next four years, respectively. Again, capitalizing

on Judge Industries$$ technology, we feel that a premium price of $700$ can be charged

for each robot. Because the technology will be obsolete, we feel at the end of the fouryear period, sales should be discontinued.$$

Judge Industries plc$.$ feels that the fixed cost for the project will be $350,000$ per year,

and variable costs are $15$ percent of sales. The equipment necessary for production will

cost $3\mathrm{.}8$ million and will be depreciated according to the schedule below. At the end of

the project, the equipment will be scrapped for $400,000.$ An initial net working capital of

$120,000$ will be required before the production starts. The company has a $38$ percent

tax rate, and the required rate of return on the project is $15$ percent.

What is the NPV of the project? Assume the company has other profitable projects.

Annual depreciation as a percentage of the cost of initial investment

Year $1234$

Depreciation $33\mathrm{.}30\%44\mathrm{.}40\%14\mathrm{.}80\%7\mathrm{.}50\%$