The answer is apparently supposed to be a negative number. X Company is planning

Question

The answer is apparently supposed to be a negative number.

X Company is planning to launch a new product. Market research, costing $200,000, has already been done indicating that the product will be successful for four years, but to insure success, the company plans to undertake an immediate advertising campaign that will also cost $200,000. New manufacturing equipment will have to be purchased - it will cost $400,000 and have a disposal value at the end of four years of $14,000. It is expected that profits from sales of the product will be $150,000 in each of the first two years and $116,000 in each of the last two years. Assuming a discount rate of 4%, what is the net present value of launching the new product

Explanation / Answer

Based on the information given, the Net Present Value of the Project for X Company will be determined using the following factors : Advertising Campaign Costs $ 200,000 Outflow Manufacturing Equipment $ 400,000 Outflow Disposal of Equipment $ 14,000 Inflow Profits for Year 1 $ 150,000 Inflow Profits for Year 2 $ 150,000 Inflow Profits for Year 3 $ 116,000 Inflow Profits for Year 4 $ 116,000 Inflow Discount Rate applicable 4% From the above, the Net Present Value works out to -$ 102,901.22

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