(Calculating project cash flows and NPV) Bestkits are considering launching a new model kit version of a...
Question:
(Calculating project cash flows and NPV) Bestkits are considering launching a new model kit version of a previously best-selling remote control car. Market research undertaken this year at a cost of £60,000 has indicated that the product should be commercially viable for four years, with likely sales figures in Year 1 of 125,000 units selling at £5 each; it is anticipated that units will increase by 2 percent per year and the price by 3 percent per year. The product will require some immediate alteration to the production line costing £400,000 and additional annual maintenance from Year 1 of £15,000 per annum. In Year 3 there will be a technical inspection cost of £50,000.
The production of these units will require variable costs of production of £475,000, increasing at 3 percent per year. The business has a cost of funds of 6 percent.
a. Calculate the project cashflows.
b. Calculate the project payback.
c. Calculate the project NPV.
Step by Step Answer:
Financial Management Principles And Applications
ISBN: 9781292222189
13th Global Edition
Authors: Sheridan Titman, Arthur Keown, John Martin