X Company is planning to launch a new product. Market research, costing S140,000
ID: 2463356 • Letter: X
Question
X Company is planning to launch a new product. Market research, costing S140,000, 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 $140,000. New manufacturing equipment will have to be purchased - it will cost $340,000 and have a disposal value at the end of four years of $15,000. It is expected that profits from sales of the product will be $156,000 in each of the first two years and $108,000 in each of the last two years. Assuming a discount rate of 4%, what is the net present value of launching the new product (you may not see your exact answer, but if it's correct, there should be one close to it).? X Company is considering an upgrade to its computer equipment that will cost $30,000 but result in smaller operating costs. Estimated annual operating costs are as follows: If X Company decides to replace the equipment, what is the payback period (in years)?Explanation / Answer
As per Chegg guidelines we answer one question per post D $15,393 Statement showing Cash flows Particulars Time PVf@6% Amount PV Cash Outflows (Advertising Campaign) - 1.00 (140,000.00) (140,000.00) Cash Outflows (Equipment Cost) - 1.00 (340,000.00) (340,000.00) PV of Cash outflows (480,000.00) Cash inflows 1.00 0.9615 156,000.00 150,000.00 Cash inflows 2.00 0.9246 156,000.00 144,230.77 Cash inflows 3.00 0.8890 108,000.00 96,011.61 Cash inflows 4.00 0.8548 108,000.00 92,318.85 Cash inflows (Salvage Value) 4.00 0.8548 15,000.00 12,822.06 PV of Cash Inflows 495,383.29 NPV 15,383.29 Note Market Reasearch is sunk cost and thus ignored
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