4.

We are evaluating a project that costs$500,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 50,000 units per year. Price per unit is $40, variable cost per unit is $25, and fixed costs are $600,000 per year. The tax rate is 35 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within 10 percent.

Calculate the best-case and worst-case NPV figures.(Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places (e.g., 32.16).)

NPV

Best-case$ =

Worst-case$=

5.

The manager for a growing firm is considering the launch of a new product. If the product goes directly to market, there is a 60 percent chance of success. For $169,000, the manager can conduct a focus group that will increase the products chance of success to 75 percent. Alternatively, the manager has the option to pay a consulting firm $384,000 to research the market and refine the product. The consulting firm successfully launches new products 90 percent of the time. If the firm successfully launches the product, the payoff will be $1.84 million. If the product is a failure, the NPV is zero.

Calculate the NPV for each option available for the project.(Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars (e.g. 1,234,567).)

NPV

Go to market now$=

Focus group$ =

Consulting firm$ =

Which action should the firm undertake?

Focus group

Consulting firm

Go to market now