In this question, the initial cash outlay is not given. Hence, I cannot calculate the NPV. However, I have calculated the present value of the profits generated from the business in the Excel table given below:
Year | 1 | 2 | 3 | 4 |
Total Market Share | 2000000 | 2040000 | 2080800 | 2122416 |
New Product Market Share | 120000 | 132000 | 145200 | 159720 |
Selling Price per product | 20 | 25 | 30 | 35 |
Variable cost per product | 5.00 | 5.25 | 5.51 | 5.79 |
Fixed Cost | 10000 | 10300 | 10609 | 10927.27 |
Revenue | 2400000 | 3300000 | 4356000 | 5590200 |
COGS | 610000 | 703300 | 811024 | 935406.6 |
Profit | 1790000 | 2596700 | 3544976 | 4654793 |
NPV | ₹ 1,03,85,831.53 |
Revenue = Selling Price* Product Market Share
CoGS = Variable Cost*Product Market Share + Fixed Cost
Profit = Revenue - COGS
Formula used to calculate NPV = npv(0.07,Profits from Year 1 to Year 4), where 0.07 is the discount rate.
You are evaluating the launch of a new product. The total market size is 2,000,000 units in Year 1. The total market is expected to grow 2% each rear thereafter For the new product, you are expected...