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    Traid Winds Corporation: project NPV for new project

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    Traid Winds Corporation, a firm in the 34% marginal tax bracket with a 15% required rate of return, is considering a new project. This project involves the introduction of a new product. This project is expected to be terminated at the end of 5 years because the product is somewhat of a fad.

    Using the provided "Triad Winds xls" and the following information, determine the:
    Project NPV using sum of individual annual PV calculations
    Project NPV using EXCEL NPV formula
    Project IRR using EXCEL IRR formula

    Project Data:
    Cost of new plant and equipment (P&E): $14,800,000

    Shipping and installation costs: $200,000

    Unit Sales Year Units Sold
    1 70,000
    2 120,000
    3 120,000
    4 80,000
    5 70,000
    Sales price per unit: $300 / unit in years 1 thru 4; $250 / unit in year 5
    Variable cost per unit: $140 / unit
    Annual Fixed Costs: $700,000

    Working Capital Requirements:
    There will be an initial working capital requirement of $200,000 just to get production started. For each year, the total investment in working capital will be equal to 10% of the dollar value of sales for that year. Thus, the investment in working capital will increase during years 1 thru 3, then decrease in year 4. Finally, all working capital will be ʽliquidatedʼ (reclaimed) at the termination of the project at the end of year 5.

    Depreciation Method:
    Use the simplified straight-line method over 5 years. It is assumed that the plant & equipment will have no salvage after 5 years.

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