Problem: The Barnhardt Corporation developed a new product that it believes will have broad market appeal. The company's recent cost and marketing studies revealed the following:
a. New equipment costing $360,000 would need to be acquired to produce the product. The equipment is estimated to have a six-year useful life, with no salvage value at the end of the six years.
b. Sales in units over the next six years are projected as follows:
|
Year
|
Unit Sales
|
|
1
|
20,000
|
|
2
|
30,000
|
|
3
|
50,000
|
|
4
|
60,000
|
Production and sales of the new product would require working capital of $450,000 to finance accounts receivable, inventory, and day-to-day cash needs. This working capital would be released at the end of the project's life.
c. The product would sell for $35 each; variable costs for production, administration, and sales would be $22 per unit.
d. Fixed costs would total $240,000 per year. These fixed costs are for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the new equipment (see item a. above). Note that the annual depreciation on the new equipment referenced in item a. above is on a straight-line basis over the six-year life.
e. To gain rapid entry into the market, the company would need to advertise heavily.
The advertising program would be:
|
Year
|
Annual Advertising
|
|
01-Feb
|
$200,000
|
|
3
|
$180,000
|
|
04-Jun
|
$120,000
|
f. The company's required rate of return is 20%. Ignore taxes.
Required:
Q1. Determine the net present value of the investment. To accomplish this, you must first construct a schedule that shows the calculation of cash flows for the current year and for years 1 through 6. Then, calculate the NPV assuming a discount factor of 20%. Ignore taxes.
Q2. Would you recommend that Barnhardt Corporation accept the new product in its product line? Why or why not?
You just have to get in touch with the proficient and skilled tutors of our NPV Assignment Help service, and you surely impress your professors and get your desired grades with ease.
Tags: NPV Assignment Help, NPV Homework Help, NPV Coursework, NPV Solved Assignments, Investment Assignment Help, Investment Homework Help