X Company is planning to launch a new product. Market research, costing $150,000
ID: 2462889 • Letter: X
Question
X Company is planning to launch a new product. Market research, costing $150,000, 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 $150,000. New manufacturing equipment will have to be purchased - it will cost $300,000 and have a disposal value at the end of four years of $20,000. It is expected that profits from sales of the product will be $180,000 in each of the first two years and $100,000 in each of the last two years. Assuming a discount rate of 5%, what is the net present value of launching the new product? Use the table below to apply discount rate.
Possible Answers:
Present Value of $1.00
Present Value of an Annuity of $1.00
A: $37,238 B: $43,569 C: $50,975 D: $59,641 E: $69,780 F: $81,643Explanation / Answer
$69,780
Market research 150000 sunk cost hence ignore Advertising cost -150000 New Man Equipment -300000 initial ouflow -450000 Disposal 20000 0.8227 PV of terminal flow 16454 Year 1 2 3 4 profit 180000 180000 100000 100000 Discount factor 0.95238 0.90702 0.86383 0.8227 PV of cashflow 171428.4 163263.6 86383 82270 Total inflow 503345 NPV 69799Related Questions
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