Huskers Inc. is considering to build a bowling ball manufacturing facility. Find the NPV and IRR of the project using the information given below:
Cost of test marketing already spent: $300,000
Current after-tax market value of the proposed factory site is $200,000 and the site can be sold immediately. This site is currently owned by the firm and fully depreciated. 5 years later this site could be sold at $150,000 after-taxes.
The cost of bowling ball machine is $100,000 to be paid immediately. The bowling machine will be depreciated based on 5-year MACRS. The salvage value of the bowling machine will be $20,000 at the end of the 5th year.
Annual production (in units) during 5-year life of the machine are 5000, 9000, 13000, 10000 and 7000 respectively.
Selling price (per unit) during the first year is $25 and price increases 2% per year thereafter.
Production costs during the first year are $9 per unit and increases 8% per year thereafter.
Huskers' wacc and tax rate are 12% and 34% respectively.