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FinanceQ&A LibraryKopperud Electronics has an investment opportunity to produce a new HDTV. Therequired investment on January 1 of this year is $150 million. The depreciation value forthis company, expressed in nominal terms, is calculated by depreciating the investmentto zero using the straight-line method over four years. The investment has no resale valueafter completion of the project. The firm has a 22 percent tax rate. The price of theproduct will be $471 per unit, in real terms, and will not change over the life of theproject. Labor costs for Year 1 will be $16.05 per hour, in real terms, and will increase at1 percent per year in real terms. Energy costs for Year 1 will be $4.38 per physical unit,in real terms, and will increase at 2 percent per year in real terms. The inflation rate is4 percent per year. Revenues are received and costs are paid at year-end. Refer to thefollowing table for the production schedule:The real discount rate for the project is 7 percent. Calculate the NPV of this project.Year 1 Year 2 Year 3 Year 4Physical production, in units 159,000 179,000 194,000 162,000Labor input, in hours 1,190,000 1,340,000 1,367,000 1,287,000Energy input, physical units 217,000 232,000 262,000 247,000Start your trial now! First week only $4.99!*arrow_forward*

Question

Kopperud Electronics has an investment opportunity to produce a new HDTV. The

required investment on January 1 of this year is $150 million. The depreciation value for

this company, expressed in nominal terms, is calculated by depreciating the investment

to zero using the straight-line method over four years. The investment has no resale value

after completion of the project. The firm has a 22 percent tax rate. The price of the

product will be $471 per unit, in real terms, and will not change over the life of the

project. Labor costs for Year 1 will be $16.05 per hour, in real terms, and will increase at

1 percent per year in real terms. Energy costs for Year 1 will be $4.38 per physical unit,

in real terms, and will increase at 2 percent per year in real terms. The inflation rate is

4 percent per year. Revenues are received and costs are paid at year-end. Refer to the

following table for the production schedule:

The real discount rate for the project is 7 percent. Calculate the NPV of this project.

Year 1 Year 2 Year 3 Year 4

Physical production, in units 159,000 179,000 194,000 162,000

Labor input, in hours 1,190,000 1,340,000 1,367,000 1,287,000

Energy input, physical units 217,000 232,000 262,000 247,000

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