ZuoTi.Pro
Question

Your firm is considering designing a new computer/TV interface. If you design this product and demand...

Your firm is considering designing a new computer/TV interface. If you design this product and demand is high, you believe the present value of cash flows will be $15 million. If demand is low, the present value of revenues will be only $3 million. The probability that demand will be high is 35%. The product will cost $7 million dollars to design. Which of the following best describes the NPV of the project.

The NPV is less than 0.

The NPV is greater than 0 but less than $500,000.

The NPV is greater than $500,000 but less than $1,000,000.

The NPV is greater than $1,000,000 but less than $2,000,000.

The NPV is greater than $2,000,000.
business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Net present value (NPV):

= Present value of cash inflows-Present value of cash outflows

= $15,000,000×35%+$3,000,000×65%-$7,000,000

= $5,250,000+$1,950,000-$7,000,000

= $200,000

Hence, correct option is “The NPV is greater than 0 but less than $500,000”

*Please rate thumbs up

0 0
Add a comment
Know the answer?
Add Answer to:
Your firm is considering designing a new computer/TV interface. If you design this product and demand...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Expando, Inc. is considering the possibility of building an additional factory that would produce a new...

    Expando, Inc. is considering the possibility of building an additional factory that would produce a new addition to its product line. The company is currently considering two options. The first is a small facility that it could build at a cost of $6 million. If demand for new products is low, the company expects to receive $10 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects...

  • Expando, Inc. is considering the possibility of building an additional factory that would produce a new...

    Expando, Inc. is considering the possibility of building an additional factory that would produce a new addition to its product line. The company is currently considering two options. The first is a small facility that it could build at a cost of $5 million. If demand for new products is low, the company expects to receive $9 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects...

  • Expando, Inc. is considering the possibility of building an additional factory that would produce a new...

    Expando, Inc. is considering the possibility of building an additional factory that would produce a new addition to its product line. The company is currently considering two options. The first is a small facility that it could build at a cost of $9 million. If demand for new products is low, the company expects to receive $9 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects...

  • You calculate the net present value (NPV) for a project your firm is considering. Using a...

    You calculate the net present value (NPV) for a project your firm is considering. Using a 12% discount rate, the NPV is $600,000. The cost of the project is $1,200,000. What decision do you make? Group of answer choices Reject because the NPV is less than the cost of the project. Accept because $600,000 divided by $1,200,000 is 50%, which is greater than the discount rate. None of these are correct. Reject because the NPV should be negative. Accept because...

  • You calculate the net present value (NPV) for a project your firm is considering. Using a...

    You calculate the net present value (NPV) for a project your firm is considering. Using a 12% discount rate, the NPV is $600,000. The cost of the project is $1,200,000. What decision do you make? Group of answer choices Accept because the NPV is greater than $0. Reject because the NPV should be negative. None of these are correct. Reject because the NPV is less than the cost of the project. Accept because $600,000 divided by $1,200,000 is 50%, which...

  • Problem 5-8 Expando, Inc., is considering the possibility of building an additional factory that would produce...

    Problem 5-8 Expando, Inc., is considering the possibility of building an additional factory that would produce a new addition to their product line. The company is currently considering two options. The first is a small facility that it could build at a cost of $7 million. If demand for new products is low, the company expects to receive $10 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high,...

  • You MUST explain your answer in order to receive participation credit. Why are some of the...

    You MUST explain your answer in order to receive participation credit. Why are some of the other options FALSE? >>>> Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows,with one outflow followed by a series of inflows. a. A project’s NPV is found by compounding the cash inflows at the IRR to find the terminal value (TV), then discounting the TV at the WACC. b. The lower the WACC used to calculate...

  • CASE II AziTech is considering the design of a new CPU for its new model of...

    CASE II AziTech is considering the design of a new CPU for its new model of computer systems for 2021. It is considering choosing between two (2) CPU (CPUA and CPUB) implementations based on their performance. Both CPU are expected to have the same instruction set architecture. CPUA has a clock cycle time of 60 ns and CPUB has a clock cycle time of 75 ns. The same number of a particular instruction type is expected to be executed on...

  • You have been hired to test whether the demand for a product that your client produces...

    You have been hired to test whether the demand for a product that your client produces varies between two demographic markets – the Urban and Rural markets. As such, in each market, you run a short survey that gauges customers demand for your product and assigns them to one of three categories – (i) High (ii) Medium or (iii) Low. You survey 70 people in the “Urban” market and find that their demand falls into the following “buckets” High                       32...

  • Splash City is considering purchasing a water park in​ Atlanta, Georgia, for $1,910,000. The new facility...

    Splash City is considering purchasing a water park in​ Atlanta, Georgia, for $1,910,000. The new facility will generate annual net cash inflows of $472,000 for eight years. Engineers estimate that the facility will remain useful for eight years and have no residual value. The company uses​ straight-line depreciation, and its stockholders demand an annual return of 10​% on investments of this nature. Requirement 1. Compute the​ payback, the​ ARR, the​ NPV, the​ IRR, and the profitability index of this investment....

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT