Nowater Filters Ltd has recently completed a $50,000 marketing study. Based on the
results, Nowater has estimated that 10,000 of its new water filters could be sold
annually over the next four years at a price of $150 each. Variable costs per filter
would be $100, and fixed costs would total $300,000 per year.
Start-up costs include $500,000 to build new machinery and $150,000 to buy land.
The $500,000 machine will be depreciated using the straight line method to zero over
the project’s life. At the end of the project’s life, the machine and land are expected to
be sold for an estimated $225,000. The land’s value is not expected to change.
Increased working capital (mostly inventory) is expected to be $25,000.
The company tax rate is 30% and Nowater Filters Ltd has a required return of 12%
on all investments.
Required
Using a table to illustrate your cashflows, calculate the:
a. NPV
b. IRR
c. Payback Period
d. Present Value Index (PVI)