Tech Pro Inc. is investigating the feasibility of introducing a new high tech baseball bat. Based on research conducted by the firm unit
sales are projected to be as follows:
Year Unit Sales
The new bat would be priced at $225.00 per unit. The variable cost per unit will
be $110.00 and fixed cost will be $42000.00 per year. The new bat will require
$30000.00 in new net working capital at the start.
It will cost $780000.00 to buy the equipment necessary to begin production. In
addition the equipment will cost $40000.00 to setup. The equipment will be
classified as three year MACRS property. The equipment will have a salvage value of $10000.00 at the end of the four years. The firm%u2019s
marginal tax rate is 35% and its%u2019 weighted average cost of capital is 12%. Using the NPV method of
analysis determine whether the firm should undertake the proposed project.
Why or why not? In addition what is the IRR on the proposed project?
Additional information: Depreciation Table
Year 3 Year Property
ALL CALCULATIONS ARE TO BE DONE USING EXCEL AND FULLY EXPLAINED TO RECEIVE FULL CREDIT.