MADRIC INC. is the manufacturer of fitness devices and is considering producing a new line of equipment in an effort to increase its market share. The new production line will cost $1,550,000 for manufacturing the parts and an additional $130,000 is needed for installation.
The equipment falls into the MACRS 3-yr class, and would be sold after four years for $400,000.
The equipment line will generate additional annual revenues of $865,000, and will have additional annual operating expenses of $500,000. An inventory investment of $90,000 is required during the life of the project. MADRIC is in the 35 percent tax bracket, and its existing cost of capital is 6 percent.
The Initial Outlay is -1770000
The IRR= 2.5
A.Calculate the annual after-tax operating cash flow for Years 1 -4.
B. What is the equipment NPV?