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 $ 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?
Solutions
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.
If you have any query related to question then feel free to ask me in a comment. Thanks. Please rate.
jeff jeffy answered 1 year agoRelated 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 $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
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
Latest Questions
- Atkins Farms makes two products from their apples: apple pies and apple donuts. From a standard...
- According to the CAPM, which of the following is false regarding the market portfolio? All securities...
- 1) Why do we see a deflection in the galvanometer, indicating current through the larger solenoid,...
- What is your opinion of the new FLSA rule? What do you believe as possible impacts...
- 8. Three moles of ideal monatomic gas at 400 K are compressed from 1 atm to...
- explain the dynamic modeling of three dof robotic arm with details and examples.
- QDM Question 4 (25 marks): In the planning of the monthly production for the next four...
ADVERTISEMENT