Grady Precision Measurement Tools has forecasted the following sales and costs for a new GPS system: annual sales of 46,000 units at $17 a unit, production costs at 39% of sales price, annual fixed costs for production at $200,000. The company tax rate is 30%. What is the annual operating cash flow of the new GPS system? Should Grady Precision Measurement Tools add the GPS system to its set of products The initial investment is $1,400,000 for manufacturing equipment, which will be depreciated over six years (straight line) and will be sold at the end of five years for $380,000. The cost of capital is 10?%.
a) What is the annual operating cash flow of the new GPS system?
b) What is the after-tax cash flow of the GPS system at disposal?
c) What is the NPV of the new GPS system?
d) Should Grady Precision Measurement Tools add the GPS system to its set of products?
1. Yes, because the project will generate enough wealth to give investors an adequate yield.
OR
2. No, because the NPV is negative which means the projected annual rate of return on the project is less than the cost of capital.