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    Hạt Tiêu
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    Labonevane plans to launch a new product requiring $700,000 for a new plant and equipment, depreciated over 7 years but sold after 4 years for $450,000. It also requires $150,000 in initial working capital. Sales are expected to be $3,000,000 the first year and increase 6% annually, while variable costs are 77% of sales and operating fixed costs start at $500,000 and rise 5% each year. The tax rate is 30% and the project NPV is sought at a 12% discount rate.

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    LABONEVANE CASE STUDY

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    Labonevane plans to launch a new product requiring $700,000 for a new plant and equipment, depreciated over 7 years but sold after 4 years for $450,000. It also requires $150,000 in initial working capital. Sales are expected to be $3,000,000 the first year and increase 6% annually, while variable costs are 77% of sales and operating fixed costs start at $500,000 and rise 5% each year. The tax rate is 30% and the project NPV is sought at a 12% discount rate.

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    13 views1 page

    Labonevane Case Study

    Uploaded by

    Hạt Tiêu
    Labonevane plans to launch a new product requiring $700,000 for a new plant and equipment, depreciated over 7 years but sold after 4 years for $450,000. It also requires $150,000 in initial working capital. Sales are expected to be $3,000,000 the first year and increase 6% annually, while variable costs are 77% of sales and operating fixed costs start at $500,000 and rise 5% each year. The tax rate is 30% and the project NPV is sought at a 12% discount rate.

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    © All Rights Reserved
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    LABONEVANE CASE STUDY

    Labonevane inc. plans to launch a new product. This project requires an initial investment
    (year 0) of $700,000 in the construction and in the equipment of a new plant. This investment
    would be linearly depreciated over 7 years. However, the firm has planned to end the project
    at the end of the fourth year and thinks it will sell its plant and its equipment for $450,000.
    This project would also require an initial investment in working capital requirements of
    $150,000 which would be totally recovered in four years. To simplify, we neglect the annual
    fluctuations of working capital requirements.
    The expected sales for the first year would be $3,000,000 and would then increase in 6% a
    year.
    The variable costs of manufacturing would amount to 77% of the annual sales. The operating
    fixed costs before depreciation would be $500,000 the first year and then would increase in
    5% a year.
    The tax rate is 30%.

    What is the NPV of this project given that the discount rate is 12%?

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