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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?

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Expert Solution

Solution:-

Net Present Value of Product
Year Cash Flows Discounting Factor @ 20% Present Value
0 -12000000 1 -12000000
1 2800000 0.833 2333333.33
2 2800000 0.694 1944444.44
3 2800000 0.579 1620370.37
4 2800000 0.482 1350308.64
5 2800000 0.402 1125257.20
NPV -3626286.01
Net Present Value of Product
Year Cash Flows Discounting Factor @ 25% Present Value
0 -12000000 1 -12000000
1 2800000 0.800 2240000.00
2 2800000 0.640 1792000.00
3 2800000 0.512 1433600.00
4 2800000 0.410 1146880.00
5 2800000 0.328 917504.00
NPV -4470016.00
Net Present Value of Product
Year Cash Flows Discounting Factor @ 30% Present Value
0 -12000000 1 -12000000
1 2800000 0.769 2153846.15
2 2800000 0.592 1656804.73
3 2800000 0.455 1274465.18
4 2800000 0.350 980357.83
5 2800000 0.269 754121.41
NPV -5180404.69

Discount rate is the Project attractive-

5% is the discount rate on which project is attractive. NPV is acceptable in which it is greater than or equal to zero. At 5% discount Rate NPV is $1,22,534.

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jeff jeffy answered 1 year ago
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