question archive Texas Wild Corporation is considering investing in a project to produce a new product
Texas Wild Corporation is considering investing in a project to produce a new product
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Texas Wild Corporation is considering investing in a project to produce a new product. The project is expected to last for six years. The company needs to acquire a new equipment at the cost of $128,000. The equipment also incurs shipping cost and installation cost of $2,500 and $1,500 respectively. The company will apply the straight-line depreciation method over six-year useful life, and it is assumed that the equipment will have zero salvage value at the termination of the project. The company has a 20% tax rate. Given the following information:
|
Year |
1 |
2 |
3 |
4 |
5 |
6 |
|
Unit sold |
2,000 |
3,000 |
4,000 |
5,000 |
3,000 |
2,000 |
Unit selling price and unit variable cost are $100 and $60 respectively. Total annual fixed costs are $50,000. There will be an initial net operating working capital investment of $18,000 to get production started. For each year, the total investment in net operating working capital will be equal to 10 percent of the dollar value of sales for that year. The investment in net operating working capital is liquidated at the termination of the project. What is the project’s initial outlay?
Select one:
a. $140,000.
b. $132,000.
c. $120,000.
d. $150,000.
