Suppose a company has the opportunity to bring out a new product, the Vitamin-Burger. The initial...

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Suppose a company has the opportunity to bring out a newproduct, the Vitamin-Burger. The initial cost of the assets is $105million, and the company’s working capital would increase by $13million during the life of the new product. The new product isestimated to have a useful life of four years, at which time theassets would be sold for $16 million.
Management expects company sales to increase by $140 million thefirst year, $175 million the second year, $155 million the thirdyear, and then trailing to $65 million by the fourth year becausecompetitors have fully launched competitive products. Operatingexpenses are expected to be 70% of sales, and depreciation is basedon an asset life of three years under MACRS (modified acceleratedcost recovery system): Year 1: 33.33%, Year 2: 44.45%, Year 3:14.81% and Year 4: 7.41%.
If the required rate of return on the Vitamin-Burger project is8% and the company's tax rate is 30%, should the company invest inthis new product? Why or why not?

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Suppose a company has the opportunity to bring out a newproduct, the Vitamin-Burger. The initial cost of the assets is $105million, and the company’s working capital would increase by $13million during the life of the new product. The new product isestimated to have a useful life of four years, at which time theassets would be sold for $16 million.Management expects company sales to increase by $140 million thefirst year, $175 million the second year, $155 million the thirdyear, and then trailing to $65 million by the fourth year becausecompetitors have fully launched competitive products. Operatingexpenses are expected to be 70% of sales, and depreciation is basedon an asset life of three years under MACRS (modified acceleratedcost recovery system): Year 1: 33.33%, Year 2: 44.45%, Year 3:14.81% and Year 4: 7.41%.If the required rate of return on the Vitamin-Burger project is8% and the company's tax rate is 30%, should the company invest inthis new product? Why or why not?