Question

In: Finance

Your firm is considering the launch of a new product, the XJ5. The upfront development cost...

Your firm is considering the launch of a new product, the XJ5. The upfront development cost is $10.0 million, and you expect to earn a cash flow of $3.0 million per year for the next five years. The appropriate hurdle rate for the XJ5 project is 10.00% per year. What is the XJ5 project’s net present value (NPV)?

A. -$1.37 million
B. -$5.00 million
C. -$10.00 million
D. $1.37 million
E. $5.00 million
F. $11.37 million

Solutions

Expert Solution

Calculation of net present value:
Time PVF @10% Amount PV
               -                  1.00                                                          -10.00                                          -10.00
          1.00           0.9091                                                              3.00                                              2.73
          2.00           0.8264                                                              3.00                                              2.48
          3.00           0.7513                                                              3.00                                              2.25
          4.00           0.6830                                                              3.00                                              2.05
          5.00           0.6209                                                              3.00                                              1.86
                                             1.37
Net present value is $1.37 million
So correct answer is D) $1.37 million

Related Solutions

Your firm is considering the launch of a new​ product, the XJ5. The upfront development cost...
Your firm is considering the launch of a new​ product, the XJ5. The upfront development cost is $ 12 ​million, and you expect to earn a cash flow of $ 2.8 million per year for the next 5 years. Create a table for the NPV profile for this project for discount rates ranging from 0 % to 30 % ​(in intervals of 5 %​). For which discount rates is the project​ attractive?
The manager for a growing firm is considering the launch of a new product. If the...
The manager for a growing firm is considering the launch of a new product. If the product goes directly to market, there is a 60 percent chance of success. For $176,000, the manager can conduct a focus group that will increase the product’s chance of success to 75 percent. Alternatively, the manager has the option to pay a consulting firm $391,000 to research the market and refine the product. The consulting firm successfully launches new products 90 percent of the...
The manager for a growing firm is considering the launch of a new product. If the...
The manager for a growing firm is considering the launch of a new product. If the product goes directly to market, there is a 50 percent chance of success. For $184,000, the manager can conduct a focus group that will increase the product’s chance of success to 65 percent. Alternatively, the manager has the option to pay a consulting firm $399,000 to research the market and refine the product. The consulting firm successfully launches new products 80 percent of the...
The manager for a growing firm is considering the launch of a new product. If the...
The manager for a growing firm is considering the launch of a new product. If the product goes directly to market, there is a 50 percent chance of success. For $181,000 the manager can conduct a focus group that will increase the product’s chance of success to 65 percent. Alternatively, the manager has the option to pay a consulting firm $396,000 to research the market and refine the product. The consulting firm successfully launches new products 80 percent of the...
Your firm is considering a new product development. An outlay of $110,000 is required for equipment,...
Your firm is considering a new product development. An outlay of $110,000 is required for equipment, and additional net working capital of $5,000 is required. Implementing the project will generte a time zero investment tax credit benefit of $3,000 for the firm (i.e. at the beginning of the project). The project is expected to have a 4 year life, and the equipment will be depreciated on a straight line basis to a $10,000 book value. Producing the new product will...
Halloween, Inc., is considering a new product launch. The firm expects to have an annual operating...
Halloween, Inc., is considering a new product launch. The firm expects to have an annual operating cash flow of $8.8 million for the next 8 years. The discount rate for this project is 12 percent for new product launches. The initial investment is $38.8 million. Assume that the project has no salvage value at the end of its economic life.    a. What is the NPV of the new product? (Do not round intermediate calculations and enter your answer in...
Halloween, Inc., is considering a new product launch. The firm expects to have an annual operating...
Halloween, Inc., is considering a new product launch. The firm expects to have an annual operating cash flow of $8.9 million for the next 9 years. The discount rate for this project is 14 percent for new product launches. The initial investment is $38.9 million. Assume that the project has no salvage value at the end of its economic life.    a. What is the NPV of the new product? (Do not round intermediate calculations and enter your answer in...
Project Analysis: You are considering a new product launch. The project will cost $760,000, have a...
Project Analysis: You are considering a new product launch. The project will cost $760,000, have a four year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 420 units per year; price per unit will be $17,200; variable cost per unit will be $14,300; and fixed costs will be $640,000 per year. The required return on the project is 15 percent, and the relevant tax rate is 35 percent. a. Based on your experience,...
Allied Products, Inc., is considering a new product launch. The firm expects to have annual operating...
Allied Products, Inc., is considering a new product launch. The firm expects to have annual operating cash flow of $9.1 million for the next 9 years. Allied Products uses a discount rate of 14 percent for new product launches. The initial investment is $39.1 million. Assume that the project has no salvage value at the end of its economic life. a. What is the NPV of the new product? b. After the first year, the project can be dismantled and...
You are considering a new product launch. The project will cost $760,000, have a 4-year life,...
You are considering a new product launch. The project will cost $760,000, have a 4-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 450 units per year; price per unit will be $17,800, variable cost per unit will be $14,500, and fixed costs will be $740,000 per year. The required return on the project is 13 percent, and the relevant tax rate is 24 percent. a. The unit sales, variable cost, and fixed...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT