Question

6LTZSy 8 pt X Company is planning to launch a new product. A market research study, costing $150,000, was conducted last year, indicating that the product will be successful for the next four years. Profits from sales of the product are expected to be $152.000 in each of the first two years and $106,000 in each of the last two years. The company plans to undertake an immediate advertising campaign that will cost $83,000. New manufacturing equipment will have to be purchased for $380,000; it will have zero disposal value at the end of the four years. Assuming a discount rate of 5%, what is the t present value of launching the new product ? FO S-3,931 z102-s OD 912-s Oa 0191- OH ws1-s OV 'O1 f its current machines with either Machine A or Machine B. The useful life of both nts $73,000. Estimated annual cash flows with the two

Answer 1

	Now	1	2	3	4
Manufacturing Equipment	-380000
Advertising	-83000
Annual Profits		152000	152000	106000	106000
Total cash flows	-463000	152000	152000	106000	106000
X PV factor 5%	1	0.952	0.907	0.864	0.823
Present value of cash flows	-463000	144704	137864	91584	87238
Net Present value	-1610
Option B $-1,610 is correct