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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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Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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