Question

X Company is planning to launch a new product. A market research study, costing $160,000, was conducted last yea, indicating that the product will be successful for the next four years. Profits from sales of the product are expected to be $178,000 in each of the first two years and $113,000 in each of the last two years. The company plans to undertake an immediate advertising campaign that will cost $82,000. New manufacturing equipment will have to be purchased for $340,000; it will have zero disposal value at the end of the four years. Assuming a discount rate of 5%, what is the net present value of launching the new product? Su Are Thies 0/3

Answer 1

Solution:

DE Computation of NPV - X Company Particulars Period Amount PV factor at 5% Present Value Cash outflows: Initial investment (Equipment + Advertising) $422,000.00 $422,000 Present Value of Cash outflows (A) $422,000 42 43 44 Cash Inflows Year 1 Year 2 Year 3 Year 4 45 1 $178,000.00 2 $178,000.00 3 $113,000.00 4 $113,000.00 0.952 0.907 0.864 0.823 $169,456 $161,446 $97,6321 $92,999 46 Present Value of Cash Inflows (B) $521,533 Net Present Value (NPV) (B-A) $99,533 54 66 67 68 69 70 71 72 73 74 75 76 Driven para un personas pasivo Cain 786 (2) Sheet706 (15) Sheet390 (2) Sheet375 (4) Sheet226 (2)