Superior Manufacturing is thinking of launching a new product. The company expects to sell $950,000 of the new product in the first year and $1,500,000 each year thereafter. Direct costs including labor and materials will be 55% of sales. Indirect incremental costs are estimated at $80,000 a year. The project requires a new plant that will cost a total of $1,000,000, which will be depreciated straight line over the next five years. The new line will also require an additional net investment in inventory and receivables in the amount of $200,000. Assume there is no need for additional investment in building and land for the project. The firm's marginal tax rate is 35%, and its cost of capital is 10%. Based on this information you are to calculate the incremental cash flows for the project as well as the payback period.© BrainMass Inc. brainmass.com June 3, 2020, 6:52 pm ad1c9bdddf
The solution explains the calculation of incremental cash flows for a project and the calculation of payback period and NPV in an attached spreadsheet.