You must analyze a potential new product—a caulking compound that Cory Materials’ R&D people developed for use in the residential construction industry. Cory’s marketing manager thinks the company can sell 115,000 tubes per year at a price of RM3.25 each for 3 years, after which the product will be obsolete. The required equipment would cost RM150,000, Variable costs would be RM1.60 per unit, fixed costs (exclusive of depreciation) would be RM80,000 per year, and the depreciation on the equipment is 20,000 per annum. Cory’s tax rate is 35%, and it uses a 9% WACC for average-risk projects. If the number of tubes produced declined by 30% from the expected level, by how much would the project's NPV change?

You must analyze a potential new product—a caulking compound that Cory Materials’ R&D people developed for use in the residential construction industry. Cory’s marketing manager thinks the company can sell 115,000 tubes per year at a price of RM3.25 each for 3 years, after which the product will be obsolete. The required equipment would cost RM150,000, Variable costs would be RM1.60 per unit, fixed costs (exclusive of depreciation) would be RM80,000 per year, and the depreciation on the equipment is 20,000 per annum. Cory’s tax rate is 35%, and it uses a 9% WACC for average-risk projects. If the number of tubes produced declined by 30% from the expected level, by how much would the project's NPV change?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 8EB: Shonda & Shonda is a company that does land surveys and engineering consulting. They have an...

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