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# A manufacturing company is thinking of launching a new

Customer Question
product. The company expects to...
A manufacturing company 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 45% of sales. Indirect incremental costs are estimated at \$95,000 a year. The project requires a new plant that will cost a total of \$1,500,000, which will be a depreciated straight line over the next 5 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 the land for the project. The firm's marginal tax rate is 35%, and its cost of capital is 10%.
To receive full credit on this assignment, please show all work, including formulae and calculations used to arrive at financial values.
Assignment Guidelines
Using the information in the assignment description:
Prepare a statement showing the incremental cash flows for this project over an 8-year period.
Calculate the payback period (P/B) and the net present value (NPV) for the project.
Do you think the project should be accepted? Why?
Assume the company has a P/B (payback) policy of not accepting projects with life of over 3 years.
If the project required additional investment in land and building, how would this affect your decision? Explain.
Submitted: 2 years ago.Category: Finance
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11/22/2015
Financial Professional: Manal Elkhoshkhany, Tutor replied 2 years ago
Category: Finance
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