A manufacturing company is thinking of launching a new product (solution attached)

Assignment Type:  Individual Project    Deliverable Length:  2-3 pages 
Points Possible:  125    Due Date:  12/5/2010 11:59:59 PM  CT  

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 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 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:

o    Prepare a statement showing the incremental cash flows for this project over an 8-year period.

o    Calculate the payback period (P/B) and the net present value (NPV) for the project.

o    Answer the following questions based on your P/B and NPV calculations:

§  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.

Your submitted assignment (125 points) must include the following:

·         A 2–3 page, double-spaced Word document that contains your calculation values, your complete calculations, any formulae that you used, and your answers to the two questions listed in the assignment guidelines.

o    You must include your explanation of how you used Microsoft Excel for your calculations if applicable.

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