You are considering adding a new item to your company’s line of products. The machine required to manufacture the item costs $200000, and it depreciates straight-line over 4 years. The new item would require a $30000 increase in inventory and a $15000 increase in accounts payable. You plan to market the items for four years and then sell the machine for $40000. You expect to sell 2000 items per year at a price of $300. You expect manufacturing costs to be $220 per item and the fixed cost to be $3,000 per year. If the tax rate is 30% and your weighted average cost of capital is 12% per year, what is the net present value of selling the new item?

Answer rating: 100% (QA)

To calculate the net present value NPV of selling the new item we need to consider the cash flows as... View the full answer