(SOLVED) Fireplaces Etc is about to launch a new range of


Question Description:

$19

Fireplaces Etc. is about to launch a new range of wood stoves, priced at $110 per unit. The unit cost of the wood stoves is $65. The firm expects to sell the wood stoves over the next 5 years. The venture will require an initial investment in plant and equipment of $25,000. Assume that the investment will be in an asset class with a CCA rate of 15%. At the end of 5 years, the plant and equipment will have a zero salvage value, but Fireplaces Etc. will continue to have other assets in this asset class. Sales projections for the wood stoves are as follows:
Year Unit Sales
1…………………………….300
2…………………………….350
3…………………………….400
4…………………………….500
5…………………………….500
The net working capital requirement (including the initial working capital needed in year 0) is expected to be 20% of the following year’s sales. The firm’s tax rate is 35%. Using a discount rate of 15%, calculate the net present value of the project.

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$19