With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a "surf lifestyle for the home." With limited capital, they decided to focus on surf print table and floor lamps to accent people's homes. They projected unit sales of these lamps to be 7,000 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require $35,000 in net working capital to start. Total fixed costs are $95,000 per year, variable production costs are $20 per unit, and the units are priced at $48 each. The equipment needed to begin production will cost $175,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 34 percent, and the required rate of return is 25 percent. Critically analyse and compute the NPV of this project.

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a "surf lifestyle for the home." With limited capital, they decided to focus on surf print table and floor lamps to accent people's homes. They projected unit sales of these lamps to be 7,000 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require $35,000 in net working capital to start. Total fixed costs are $95,000 per year, variable production costs are $20 per unit, and the units are priced at $48 each. The equipment needed to begin production will cost $175,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 34 percent, and the required rate of return is 25 percent. Critically analyse and compute the NPV of this project.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 1iM

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With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 7,900 in the first year, with growth of 7 percent each year for the next five years. Production of these lamps will require $44,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $104,000 per year, variable production costs are $24 per unit, and the units are priced at $52 each. The equipment needed to begin production will cost $184,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 35 percent and the required rate of return is 25 percent. What is the NPV of this project?
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With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people's homes. They projected unit sales of these lamps to be 7,200 in the first year, with growth of 6 percent each year for the next five years. Production of these lamps will require $37,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $97,000 per year, variable production costs are $15 per unit, and the units are priced at $45 each. The equipment needed to begin production will cost $177,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 22 percent and the required rate of return is 30 percent. What is the NPV of this project? (Do not…
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 8,100 in the first year, with growth of 5 percent each year for the next five years. Production of these lamps will require $46,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $106,000 per year, variable production costs are $12 per unit, and the units are priced at $40 each. The equipment needed to begin production will cost $186,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 21 percent and the required rate of return is 20 percent. What is the NPV of this project? (Do…
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