The Picture-Perfect Company is considering whether it shouldintroduce a new product, a camera lens. However, they are unsure ofthe demand for the product and have hired a consultant to do somemarket research for them before moving forward. The consultant feeis $10,000. If the company produces the lens, it will have toinvest $400,000 in new equipment, and $25,000 in working capital.The equipment will last for the duration of the project, which is 3years, and will be depreciated to zero using straight-linedepreciation. In 3 years, the equipment is expected to have a scrapvalue of 5,000. The lens is expected to produce $300,000 per yearin revenues and create operating costs of $100,000 per year. If thelens is produced, Picture-Perfect expects to lose $25,000 per yearfrom the decline in demand for a lens the company is currentlyselling. If the company has a tax rate of .21 and the project has arequired return of .08, should Picture-Perfect move ahead with thenew product?
