Calculating return for new product line


Q1) Aunt   Sally's Sauces Inc., is thinking of expansion into new  line of all-natural, cholesterol-free, sodium-free, fat-free, low-calorie tomato sauces. Sally has paid $50,00 for a marketing study that point out that new product line would have sales of $650,000 per year for each of next six years. Manufacturing plant and equipment would cost $500,000 and will be depreciate according to ACRS as five-year asset. Fixed assets will have no market value at the end of six years. Annual fixed costs are projected at $80,000 and variable costs are projected at 60% of sales. Net working capital requirement are $75,000 for next six-years life of project; outlay for working capital will be recovered at end of six year. Aunt Sally's tax rate is 34% and firm requires 16% return.

Calculate present value and internal rate or return for new product line.

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Accounting Basics: Calculating return for new product line
Reference No:- TGS020951

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