Finance for Managers
You accept been assassin as a adviser for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of accomplished zithers. The bazaar for zithers is growing quickly. The aggregation bought some acreage three years ago for $2.1 actor in apprehension of application it as a baneful decay dump armpit but has afresh assassin addition aggregation to handle all baneful materials. Based on a contempo appraisal, the aggregation believes it could advertise the acreage for $2.3 actor on an aftertax basis. In four years, the acreage could be awash for $2.4 actor afterwards taxes. The aggregation additionally assassin a business close to assay the zither market, at a amount of $125,000. An extract of the business address is as follows:
The zither industry will accept a accelerated amplification in the abutting four years. With the cast name acceptance that PUTZ brings to bear, we feel that the aggregation will be able to advertise 3,600, 4,300, 5,200, and 3,900 units anniversary year for the abutting four years, respectively. Again, capitalizing on the name acceptance of PUTZ, we feel that a exceptional amount of $750 can be answerable for anniversary zither. Because zithers arise to be a fad, we feel at the end of the four-year period, sales should be discontinued. PUTZ believes that anchored costs for the activity will be $415,000 per year, and capricious costs are 15 percent of sales. The accessories all-important for assembly will amount $3.5 actor and will be attenuated according to a three-year MACRS schedule. At the end of the project, the accessories can be scrapped for $350,000. Net alive basic of $125,000 will be appropriate immediately. PUTZ has a 38 percent tax rate, and the appropriate acknowledgment on the activity is 13 percent. What is the NPV of the project?
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