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Find the NPV for the following project by looking at the MACR ScheduleJ. Smythe, Inc., manufactures fine furniture. The company is deciding whether to
introduce a new mahogany dining room table set. The set will sell for \$7,400, including a
set of eight chairs. The company feels that sales will be 1,850, 2,000, 2,550, 2,400, and
2,150 sets per year for the next five years, respectively. Variable costs will amount to 47
percent of sales and fixed costs are \$1,940,000 per year. The new tables will require
inventory amounting to 9 percent of sales, produced and stockpiled in the year prior to
sales. It is believed that the addition of the new table will cause a loss of 350 tables per
year of the oak tables the company produces. These tables sell for \$4,700 and have
variable costs of 42 percent of sales. The inventory for this oak table is also 9 percent of
sales. The sales of the oak table will continue indefinitely. J. Smythe currently has excess
production capacity. If the company buys the necessary equipment today, it will cost
\$15,000,000. However, the excess production capacity means the company can
produce the new table without buying the new equipment. The company controller has
said that the current excess capacity will end in two years with current production. This
means that if the company uses the current excess capacity for the new table, it will be
forced to spend the \$15,000,000 in two years to accommodate the increased sales of its
current products. In five years, the new equipment will have a market value of
\$3,300,000 if purchased today, and \$5,900,000 if purchased in two years. The
equipment is depreciated on a seven-year MACRS schedule. The company has a tax
rate of 23 percent and the required return for the project is 11 percent. MACRS schedule
Calculate the NPV of new project. (Do not round intermediate calculations and enter
your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,
1,234,567.89)
Year
1
2.
3
4
Property Class
Three-Year
Five-Year
33.33%
20.00%
44.45
32.00
14.81
19.20
7.41
11.52
11.52
5.76
Seven-Year
14.29%
24.49
17.49
12.49
8.93
8.92
8.93
4.46
5
6
7
8

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