Problem:
NPV. Grady Precision Measurement Tools has forecasted the following sales and costs for new GPS system annual sales of 45,000 units at $18 a unit, production costs at 38% of sales price, annual fixed costs for production at $190,000. The company tax rate is 35%. What is the annual operating cash flow of the new GPA system? Should Grady Precision Measurement Tools add the GPS system to its set of products? The initial investment is $1,410,000 and is depreciated over six years (straight line) and will be sold at the end of five years for $380,000. The cost of capital is 11%
Required:
Question 1: What is the annual operating cash flow of the new GPS system?
Question 2: What is the after-tax cash flow of the GPS system at disposal?
Question 3: What is the NPV of the new GPS system?
Note: Please show how you came up with the solution.