Super Manufacturing Inc is considering launching a new product. In order to make the product, the company must purchase a new machine. Consider the following data:

• The company has already spent $175,000 on test marketing for the new product.

• The machine costs $1 million. The machine will have no salvage value at the end of the project.

• Taxes are 30%.

• The project is expected to last 10 years.

• Sales in year 1 will be 75,000 units. In years 2-10 sales will be 100,000 units.

• Revenue in year 1 is expected to be $10 per unit. Unit revenue will increase by 3% per year.

• Production costs are expected to be $6.50 per unit and are expected to increase at 5% per year.

• Other fixed costs are expected to be $90,000 per year, increasing at 2% per year.

 Compute the NPV of this project ignoring CCA. Use a discount rate of 10%.

Answer rating: 100% (QA)

To calculate the Net Present Value NPV of the project we need to calculate the cash flows for each year and discount them to their present value Then ... View the full answer