Financial Management

So, A manufacturing company is thinking of launching a new project. The company expects to sell $950,000 of the new product in the first year and $1,500,000 each year thereafter. Direct costs including labor and materials will be 45% of sales. Indirect incremental costs are estimated at $95,000 a year.  The project requires a new plant total of $1,500,000, which will be a depreciated straight line over the next 5 years. The new line will also require an additional net investment in inventory and receivables in the amount of $200,000. Assume there is no need for additional investment in building thelandfor the project. The firm's marginal tax rate is 35% and its costs of capital is 10%.

1. Using the information in the assignment description

1. prepare a statement showing the incremental cash flows for this project over an 8-year period.

2. calculate the payback period(P/B) and the next present value (NPV) for the project.

3. Do you think the project should be accepted? Why?

Assume the company has a P/B (Payback) policy of not accepting projects with life of over 3 years.

If the project required additional investment in land and building, how would this affect your decision?