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caledonia mini case
new product, 34% tax bracket, 15% discount rate, project will last 5 years. cost of new plant and equipment 7,900,000. shipping and installation costs 100,000. Unit sales year 1- 70,000, year 2 -120,000, year 3- 140,000, year 4- 80,000, year 5- 60,000. sales price per unit: $300/ unit years 1-4 and $260/unit in year 5. Variable cost per unit: $180/ per unit. Annual fixed costs: $200,000 per year. Working capital requirement of $100,000 just to get production started. for each year the total investment in net working capital will be equal to 10% of the dollar value of sales for that year. the investment in working capital will increase in years 1-3 and decrease in year 4. All working capital is liquidated at the termination of the project at the end of year 5. Depreciation method : Straight -line over 5 years assuming the plant and equipment have no salvage value after 5 years. What is the Project’s Net Present Value (NPV)
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