I have a question that I am looking at with the following information :
Project Life 10 years
Sales forecast : Year 1 - 1,000
Year 2 - 40,000
Years 3 to 7 - 10,000
Years 8 - 5,000
Year 9 -2,000
Year 10 - 1,000
Unit selling price 5. Variable Cost 3.50. Fixed cost 3,000.
New plant and equipment for the project - 7,500.00; 10 years of useful life, zero salvage value and will be depreciated on a straight line basis.
10% of sales revenue is required for Net Working Capital each year but this investment required now.
Required rate of return 15%.
Calculate: NPV, IRR and Profitability Index.
My calculations for NPV gives me = 8,029 and Net Operating Losses in Years 1, 9 and 10 which I am not sure I am dealing with properly, particularly the taxation aspect of this.
Can someone confirm if I am on the right track?
Thank you