Cost of new plant and equipment: $14,200,000 Shipping and installation costs: $220,000 Unit sales: Year...
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Cost of new plant and equipment: $14,200,000 Shipping and installation costs: $220,000 Unit sales: Year 1 2 3 4 5 Units Sold 65,000 110,000 110,000 75,000 65,000 Sales price per unit: $330/unit in years 1 through 4, $280/unit in year 5 Variable cost per unit: $100/unit Annual fixed costs: $800,000 Working-capital requirements: There will be an initial working capital requirement of $160,000 to get production started. For each year, the total investment in net working capital will be equal to 11 percent of the dollar value of sales for that year. Thus, the investment in working capital will increase during years 1 through 3, then decrease in year 4. Finally, all working capital is liquidated at the termination of the project at the end of year 5. The depreciation method: Use the simplified straight-line method over 5 years. It is assumed that the plant and equipment will have no salvage value after 5 years. (Click on the icon in order to copy its contents into a spreadsheet.)
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