Imagine you want to start up a company to manufacture and sell Wildcat sunglasses. You’ve done...
Imagine you want to start up a company to manufacture and sell Wildcat sunglasses. You’ve done your homework and estimate design and launch costs to be $100,000. You expect to sell 500 pairs in the first year, 2,000 pairs in second year, and 5,000 pairs in the following three years. The sales price will be $99 and each pair will cost $75 to produce and market. If your required return is 20%, what is your NPV? (Round your answer to the nearest cent; e.g., $100,000.01)
Homework Answers
| Year | Initial investment | Sales units | Unit profit | Cash inflows | Net cash flow | Discount factors | PV |
| 0 | ($100,000) | ($100,000) | 1.000 | ($100,000.00) | |||
| 1 | 500 | 24 | $12,000 | $12,000 | 0.833 | $10,000.00 | |
| 2 | 2,000 | 24 | $48,000 | $48,000 | 0.694 | $33,333.33 | |
| 3 | 5,000 | 24 | $120,000 | $120,000 | 0.579 | $69,444.44 | |
| 4 | 5,000 | 24 | $120,000 | $120,000 | 0.482 | $57,870.37 | |
| 5 | 5,000 | 24 | $120,000 | $120,000 | 0.402 | $48,225.31 | |
| NPV | $118,873.46 |
Calculations:
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