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Question: CRCC Corp. is considering a new project, which requires purchasing a new machine today. The new machine costs $400,000 and will be depreciated straight line over the next four years to a zero salvage value. CRCC estimates they will sell 100,000 units (@$10/unit) of a new product every year. Fixed costs are $300,000 annually. Variable costs are $5/unit. The new lathe will require an initial one-time increase in working capital; mainly spare parts, of $20,000. The working capital will not change throughout the life of the project and will be fully recaptured at the end of the project in 4 years. At the end of the project the machinery will also be sold for $50,000. The tax rate is 34%. What is the NPV if the project has a 6% discount rate?

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Category:- Basic Finance
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