Power Pointer Inc is considering the development of a presentation projector device. The sales forecast for this device is 40,000 units per year. Power Pointer expects the product will have a three-year life and a wholesale price of $500 and production cost of $250 per unit. Power Pointer will need to purchase a new piece of equipment for $15 million of new equipment for this project. The equipment will be depreciated using the straight-line method over a 3-year life. Power Pointer's marginal tax rate is 35%. Find the NPV for this project, and decide whether Power Pointer should accept this project.

Power Pointer Inc is considering the development of a presentation projector device. The sales forecast for this device is 40,000 units per year. Power Pointer expects the product will have a three-year ife and a wholesale price of $500 and production cost of $250 per unit. Power Pointer will need to purchase a new piece of equipment for $15 million of new equipment for this project. The equipment will be depreciated using the straight-line method over a 3-year life. Power Pointer's marginal tax rate is 35% Find the NPV for this project, and decide whether Power Pointer should accept this project. Chapter 8: Capital Budgeting TO 1=1 t=2 t=3 0 20 20 20 incremental revenue 10 10 10 Incremental cost 5 5 5 depreciation 1.75 1.75 1.75 income tax 3.25 3.25 3.25 o o o o o o 9 incremental earnings 15 0 0 0 5 5 capital expenditure odd depreciation 5 -15 8.25 8.25 3.25 incremental tree cash flow