Your boss has asked you to analyze a potential new product, and to recommend if the company should produce and sell the product. Specifically, your boss wants you to prepare a spreadsheet that shows the free cash flows the product would generate, and shows what the product’s net present value and internal rate of return are and what your recommendation is.
Production information Your company’s production manager estimates manufacturing the product would require a machine that costs $900,000 and falls in the 3-year MACRS depreciation class. The machine’s expected salvage value in five years is expected to be $200,000. The production manager also estimates the product’s variable costs, consisting of raw materials and labor, would be $12.00 per unit, and the annual fixed costs excluding depreciation would be $300,000. He states the product could be manufactured in a building your company owns, which has no other use. Get Finance homework help today