Note: Assume that the equipment is put into use in year 1. (*) The opportunity cost must be after-tax. Calculate the free cash flows and determine the NPV of this project. Apple's discount rate for this project is 15.2% and its tax rate is 35%. They will remain at the elevated level until year 4, when they will return to $118.3 million. Finally, Apple's working capital levels will increase from their current level of $118.3 million to $136 million immediately. There isn't much information on what the Apple Glasses will cost, but one rumor suggests (opens in new tab) that we could see a price of 499 (410 / AU765). As the iGlasses are an outcome of the R&D center, Apple plans to charge $5 million of the annual costs of the center to the iGlasses product for four years. If Apple Glasses is going to be the next big thing in wearable technology, it would have to be priced competitively enough to win over the average consumer. ![]() Additionally, you will use some fully depreciated existing equipment that has a market value of $10.4 million. You will need to spend $55.4 million immediately on additional equipment that will be depreciated using the 5-year MACRS schedule. Revenues are projected to be $449.9 million per year along with expenses of $347.4 million. You think that these will sell for five years until the next big thing comes along (or until users are unable to interact with actual human beings). i Glasses will instantly transport the wearer into the world as Apple wants him to experience it: iTunes with the wink of an eye and apps that can be activated just by looking at them. After toiling away on $9.6 million worth of prototypes, you have finally produced your answer to Google Glasses: iGlasses (the name alone is genius).
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