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7. Project X is a new type of audiophile-grade stereo amplifier. Fixed costs for

the

project run $610,000 per year. Variable costs per amplifier run about $5,000 per

unit, and the product should have a four-year life.

We can sell 500 units per

year at a price of $10,000 each. We require a 20% return on new products such

as this one. Further, we need to invest $1,100,000 in manufacturing equipment

with a CCA class rate of 20%. In four years, the equipment can be sold for its

UCC value.

We would also have to invest $900,000 in working capital at the

start. After that, net working capital requirements would be 30% of sales. The

tax rate is 40%. Calculate the net present value of the project?

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