This paper circulates around the core theme of Pristine Urban-Tech Zither, Inc. (PUTZ) together with its essential aspects. It has been reviewed and purchased by the majority of students thus, this paper is rated 4.8 out of 5 points by the students. In addition to this, the price of this paper commences from £ 99. To get this paper written from the scratch, order this assignment now. 100% confidential, 100% plagiarism-free.
You have been hired as a consultant for Pristine Urban-Tech Zither,
Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is
growing quickly. The company bought some land three years ago for $1.46
million in anticipation of using it as a toxic waste dump site but has
recently hired another company to handle all toxic materials. Based on a
recent appraisal, the company believes it could sell the land for $1.56
million on an aftertax basis. In four years, the land could be sold for
$1.66 million after taxes. The company also hired a marketing firm to
analyze the zither market, at a cost of $131,000. An excerpt of the
marketing report is as follows:
The zither industry will have a rapid expansion in the next four
years. With the brand name recognition that PUTZ brings to bear, we feel
that the company will be able to sell 4,400, 5,300, 5,900, and 4,800
units each year for the next four years, respectively. Again,
capitalizing on the name recognition of PUTZ, we feel that a premium
price of $710 can be charged for each zither. Because zithers appear to
be a fad, we feel at the end of the four-year period, sales should be
discontinued.
PUTZ believes that fixed costs for the project will be $455,000 per
year, and variable costs are 15 percent of sales. The equipment
necessary for production will cost $4.10 million and will be depreciated
according to a three-year MACRS schedule. At the end of the project,
the equipment can be scrapped for $430,000. Net working capital of
$131,000 will be required immediately. PUTZ has a 40 percent tax rate,
and the required return on the project is 13 percent. Refer to Table
10.7.
Property Class
Year Three-Year Five-Year Seven-Year
1 33.33% 20.00% 14.29%
2 44.45% 32.00% 24.49%
3 14.81% 19.20% 17.49%
4 7.41% 11.52% 12.49%
5 11.52% 8.93%
6 5.76% 8.92%
7 8.93%
8 4.46%
What is the NPV of the project? (Do not round intermediate
calculations and round your final answer to 2 decimal places. (e.g.,
32.16))