Question

Course Contents SECOND CHANCE EXAM 2 Question 10 • Timer Notes e Feedback to X Company is planning to launch a new product. A market research study, costing $100,000, was conducted last year, indicating that the product will be success for the next four years. Profits from sales of the product are expected to be $157,000 in each of the first two years and $105,000 in each of the last two years. The company plans to undertake an immediate advertising campaign that will cost $91,000. New manufacturing equipment will have to be purchased for $300,000; it will have rere disposal ve at the end of the four years. Assuming discount rate of 5%, what is the net present value of launching the new product? Sumit Answer Tries 0/3

Answer 1

	Year	Particular	Cashflow	Discounting Factor @5%	Discounted Cash Flow
	a	b	c	d	e=d*c
	0	Cost Of New Equipment	-300000	1	-300000
	0	Advertising Cost	-91000	1	-91000
	1	Profit From Sales	157000	0.952	149523.81
	2	Profit From Sales	157000	0.907	142403.63
	3	Profit From Sales	105000	0.864	90702.95
	4	Profit From Sales	105000	0.823	86383.76
		Net Present Value			78014.15
		Therefore net present value is = $78014.15
			=$78014 (rounded off)
Note: The market research study cost was sunk cost hence it did not considered in above calculations)