You are considering new elliptical trainers and you feelyou can sell 4000 of these per year for 5 years (after which timethis project is expected to shut down). The elliptical trainerswould sell for $1200 each and have a variable cost of $550 each.The annual fixed costs associated with production would be$1300000. In addition there would be a $5500000 initialexpenditure associated with the purchase of new productionequipment. It is assumed that this initial expenditure will bedepreciated using the simplified straight-line method down to zeroover 5 years. This project will also require a one-time initialinvestment of $1100000 in net working capital associated withinventory and that working capital investment will be recoveredwhen the project is shut down. Finally assume that the firmsmarginal tax rate is 35 percent
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