Question

Space XYZ manufactures GPS tracking technology. It has a new logistics management product under development that will allow companies to better track their delivery trucks and so forth. Companies would subscribe to the service and get access to the satellite data etc. The forecast details are:

• The product will require a capital investment of $300 million
• The product will require a working capital allocation of $90 million
• Sales are 105 subscriptions per year
• Selling price is $1,000,000 per subscription
• Fixed costs are $16,000,000 per year
• Variable costs are $250,000 per subscription
• Depreciation is straight-line to zero
• The product will be viable for a lifetime of 8 years
• All working capital is returned at the end of the project
• The corporate taxation rate is 30%
• The discount rate is 15%

Compute the net present value (NPV) for this project. Should the project be undertaken?

Select one:

a. NPV = $40,090,667; The project should be undertaken.

b. NPV = $506,789,111; The project should be undertaken.

c. NPV = - $203,445,880; The project should not be undertaken.

d. NPV = - $112,990876; The project should not be undertaken.

e. NPV = - $7,002,883; The project should not be undertaken.

Answer 1