Superior Manufacturing 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 55% of sales. Indirect incremental costs are estimated at $80,000 a year. The project requires a new plant that will cost a total of $1,000,000, which will be depreciated straight line over the next five 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 and land for the project. The firm’s marginal tax rate is 35%, and its cost of capital is 10%. 1. Prepare a statement showing the incremental cash flows for this project over an 8-year period. 2. Calculate the Payback Period (P/B) and the NPV for the project.
- Prepare a statement showing the incremental cash flows for this project over an 8-year period.
- Calculate the Payback Period (P/B) and the NPV for the project.