Your mother really dislikes the low quality of T-shirts that your company makes. She also dislikes...

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Your mother really dislikes the low quality of T-shirts thatyour company makes. She also dislikes the low-brow sayings andtasteless pictures that you print on them - she won’t let youryounger sister wear them. Thus, your mom has been pestering you toexpand and produce a higher quality line of T-shirts in addition toyour current selection. Below are the details on this project. Costof new equipment: $80,000 Installation cost of equipment: $40,000Life of equipment: 5 years, Straight line depreciation Expectedsales: $170,000 per year Expected reduction in sales of cheapT-shirts as your few sober customers will probably shift to the newline: $10,000 per year Raw material cost: $90,000 per year Newworker salary: $20,000 per year Required Net working capital overthe life of the project: $20,000 Expected Salvage value ofequipment at the end of 5 year: $30,000 Tax rate: 35%. Assuming aWACC of 15%, what is this project’s NPV? a. -5,098 b. 1,610 c.8,870 d. 16,742 e. 25,294

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Calculating Total initial investment in year 0 Cost of new equipment 80000 Installation costs 40000 Total cost of new equipment Cost of new equipment installation costs 80000 40000 120000 Initial investment in working capital 20000 Total Initial investment in year 0 Total cost of new equipment investment in net working capital 120000 20000 1400000 Calculating See Answer

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Your mother really dislikes the low quality of T-shirts thatyour company makes. She also dislikes the low-brow sayings andtasteless pictures that you print on them - she won’t let youryounger sister wear them. Thus, your mom has been pestering you toexpand and produce a higher quality line of T-shirts in addition toyour current selection. Below are the details on this project. Costof new equipment: $80,000 Installation cost of equipment: $40,000Life of equipment: 5 years, Straight line depreciation Expectedsales: $170,000 per year Expected reduction in sales of cheapT-shirts as your few sober customers will probably shift to the newline: $10,000 per year Raw material cost: $90,000 per year Newworker salary: $20,000 per year Required Net working capital overthe life of the project: $20,000 Expected Salvage value ofequipment at the end of 5 year: $30,000 Tax rate: 35%. Assuming aWACC of 15%, what is this project’s NPV? a. -5,098 b. 1,610 c.8,870 d. 16,742 e. 25,294