To compute present value and internal rate of return for a new product line.
Aunt Sally's Sauces Inc., is considering expansion into a new line of all-natural, cholesterol-free, sodium-free, fat-free, low-calorie tomato sauces. Sally has paid $50,00 for a marketing study which indicates that new product line would have sales of $650,000 per year for each of the next six years. Manufacturing plant and equipment would cost $500,000 and will be depreciate according to ACRS as a five-year asset. The fixed assets will have no market value at the end of six years. Annual fixed costs are projected at $80,000 and variable costs are projected at 60% of sales. Net working capital requirement are $75,000 for next six-years life of the project; the outlay for working capital will be recovered at the end of six year. Aunt Sally's tax rate is 34% and the firm requires 16% return.
Compute present value and the internal rate or return for the new product line