Your company has been doing$$ well, reaching

$$$$1\mathrm{.}131\mathrm{.}13$

million in$$ earnings, and is considering launching a new product. Designing the new product has already cost

$$$$473$ comma $000473,000.$

The company estimates that it will sell

$810$ comma $000810,000$

units per year for

$ $2\mathrm{.}93$$$2\mathrm{.}93$

per unit and variable$$ non$-$labor costs will be

$$$$1\mathrm{.}051\mathrm{.}05$

per unit. Production will end after year

$33.$

New equipment costing

$ $1\mathrm{.}03$$$1\mathrm{.}03$

million will be required. The equipment will be depreciated to zero using the$7-$year MACRS schedule. You plan to sell the equipment for book value at the end of year

$33.$

Your current level of working capital is

$$$$304$ comma $000304,000.$

The new product will require the working capital to increase to a level of

$$$$376$ comma $000376,000$

$$immediately$,$ then to

$$$$408$ comma $000408,000$

in year$1,$ in year $2$ the level will be

$$$$348$ comma $000348,000,$

and finally in year $3$ the level will return to

$$$$304$ comma $000304,000.$

Your tax rate is

$20\%20\%.$

The discount rate for this project is

$9\mathrm{.}5\%9\mathrm{.}5\%.$

Do the capital budgeting analysis for this project and calculate its NPV$.$

Note$$:

Assume that the equipment is put into use in year $1.$

Question content area bottom

Part $1$

Design already happened and is

$$

$$

variable

sunk

fixed

$($irrelevant$).$