Project Analysis and Inflation
Earp Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the machine will be $820,000 and its economic life is five years. The machine will be fully depreciated by the straight-line method. The machine will produce 11,000 keyboards each year. The price of each keyboard will be $75 in the first year and will increase by 5 percent per year. The production cost per keyboard will be $20 in the first year and will increase by 7 percent per year. The project will have an annual fixed cost of $310,000 and will require an immediate investment of $130,000 in net working capital. The corporate tax rate for the company is 34 percent. If the appropriate discount rate is 11 percent, what is the NPV of the investment?
Project Analysis and Inflation