1) Lampro Inc. is considering the manufacture of a new lamp. Equipment necessary

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1) Lampro Inc. is considering the manufacture of a new lamp. Equipment necessary for production will cost $9 million and it will be depreciated on a straight-line basis over the eight-year life. The salvage value is estimated to be $1 million at the end of eight years. The lamp will retail for $92. The company expects to sell 140,000 lamps per year. Fixed costs will be $1,000,000 per year and variable costs are $28 per lamp. Production will require an investment in net working capital of $700,000. The tax rate is 20 percent. Perform a scenario analysis using 7 percent, 15 percent, and 25 percent cost of capital. Calculate IRR and NPV for each case.

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