Your company has spent $200,000 on research to develop a new product. The firm is planning to spend $300,000 on a machine to produce the product. Shipping and installation costs of the machine will be capitalized and depreciated; they total $25,000. The machine has an expected life of 3 years, a $50,000 estimated resale value, and falls under the MACRS 7-Year class life. Revenue from the new product is expected to be $400,000 per year, with costs of $150,000 per year. The firm has a tax rate of 35 percent, an opportunity cost of capital of 10 percent, and it expects net working capital to increase by $75,000 at the beginning of the project. Should you proceed with this project? Explain.
Should you proceed with this project? Explain.© BrainMass Inc. brainmass.com June 4, 2020, 1:38 am ad1c9bdddf
This solution helps with a problem involving capital budgeting of a new product.