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ABC Inc

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ABC Inc. projects unit sales for a new project with a life of FOUR YEARS as follows:

Year??Unit Sales

1????10,000

2????12,000

3????14,000

4????16,000

Production will require Lowell must have an amount of NOWC on hand equal to 12 percent of the upcoming year's sales. Total fixed costs are $100,000 per year, variable production costs are $240 per unit, and the units are priced at $300 each. The sale price and variable costs will increase by 2 percent every year. The equipment needed to begin production has an installed cost of $2,000,000. The equipment qualifies as 5-year MACRS property.

Years Depreciation rate

1. 20%
2. 32%
3. 19%
4. 12%

In FOUR years, this equipment can be sold for about 24 percent of its acquisition cost. ABC is in the 25 percent marginal tax bracket and has a required return on all its projects of 18 percent. Based on these preliminary project estimates, what is the NET SALVAGE VALUE of the project?

a) 480,000

b) 385,000

c) 415,000

d) 445,000