Question

Our accounting professor gave us this assignment with very little guidance. I would like to see if my answers match with you guys, thank you!

Evaluate these 3 investment opportunities:

	Product 1	Product 2	Product 3
Annual Demand (units)	6,350,000	14,000	9,100
Price (per unit)	$35.00	$42,000	$18,380
Variable Costs (per unit)	$21.40	$28,000	$10,980
Fixed Manufacturing Costs	$7,500,000	$4,350,000	$4,890,000
Selling Expenses (% of Sales Revenue)	10%	8%	5%
Upfront Costs	$165,000,000	$448,000,000	$236,000,000
Salvage Value	$0	$0	$50,000,000
Useful Life	4 years	4 years	4 years
Depreciation Expense	$41,250,000	$80,750,000	$46,500,000

Cost of Capital is 8.5%

Part 1: Calculate Net Present Value of Each Product

Part 2: Find the Profitability Index of Each Product

Part 3: Find the Payback Period for Each Product

Answer 1

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