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
Cost of new plant and equipment (P&E): $14,800,000
Shipping and installation costs: $200,000
Unit Sales Year Units Sold
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.
Use the simplified straight-line method over 5 years. It is assumed that the plant & equipment will have no salvage after 5 years.