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NOTE Corporation is planning to spend $1,200,000 on equipment and $200,000 on working capital in order...

  1. NOTE Corporation is planning to spend $1,200,000 on equipment and $200,000 on working capital in order to produce remote control audio product. Their marketing department has estimated that they can sell 10,000 units each year for the next four years. They plan to charge $100 for each unit the first and second year and increase the price by 10% for the third and fourth year. The variable cost per unit will be $60 and will remain the same for the next four years. The fixed cost will be $100,000 a year and the company plans to depreciate their investment on straight line basis over four years. The discount rate is 10% and the corporation’s tax rate is 40%.
  1. Calculate the cash flow for year zero and the next four years.
  2. Use NPV to determine if the project should be undertaken.
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