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Topperton Company has developed a new industrial product. An outlay of $8 million is required for...

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Finance

Topperton Company has developed a new industrial product. Anoutlay of $8 million is required for equipment to produce the newproduct, and additional net working capital of $400,000 is requiredto support production and marketing. In addition, a one-time$400,000 (before-tax) expense will be incurred the year that theequipment is placed into service. The equipment will be depreciatedon a straight-line basis to a zero book value over 6 years.Although the depreciable life is 6 years, the project is expectedto have a productive life of 8 years, and it is estimated that theequipment can be sold for $1 million at that time. Revenues minusexpenses are expected to be $3 million per year. The cost ofcapital for this project is 14%, and the relevant tax rate is 30%.What is the NPV of the new product?

Group of answer choices

$2,956,923

$3,326,891

$3,002,696

None of these

Answer & Explanation Solved by verified expert
4.0 Ratings (495 Votes)
Depreciation schedule is below Straight line method Year Opening balance Investment Depreciation Closing balance 0 8400000 8400000 1 8400000 1400000 7000000 2 7000000 1400000 5600000 3 5600000 1400000 4200000 4 4200000 1400000 2800000 5 2800000 1400000 1400000 6 1400000 1400000 0 Investment Cost Service expense Depreciation Investmentlife Opening balance previous years    See Answer
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