Holland, Inc., has just completed development of a new cell phone. The new product is expected to produce annual revenues of $1,350,000. Producing the cell phone requires an investment in new equipment, costing $1,440,000. The cell phone has a projected life cycle of five years. After five years, the equipment can be sold for $180,000. Working capital is also expected to increase by $180,000, which Holland will recover by the end of the new product’s life cycle. Annual cash operating expenses are estimated at $810,000. The required rate of return is 8 percent.
1. Calculate the NPV using only discount factors from Exhibit 14B 1. Round present value calculations and your final answer to the nearest whole dollar.
2. Calculate the NPV using discount factors from bothExhibit 14B 1 andExhibit 14B 2. Round present value calculations and your final answer to the nearest whole dollar.