We project unit sales for a new household-use laser-guided cockroach search and destroy system as...
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We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows:
Year Unit Sales
1 95,500
2. 107,500
3 130,500
4 136,500
5 89,500
The new system will be priced to sell at $420 each.
The cockroach eradicator project will require $1,900,000 in net working capital to start, and total net working capital will rise to 15% of the change in sales. The variable cost per unit is $290, and total fixed costs are $1,400,000 per year. The equipment necessary to begin production will cost a total of $17 million. This equipment is mostly industrial machinery and thus qualifies for CCA at a rate of 20%. In five years, this equipment will actually be worth about 20% of its cost. The relevant tax rate is 35%, and the required return is 18%. Based on these preliminary estimates, what is the NPV of the project?
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