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A company is investigating the benefit of investing in the development of a new product. The following are the expected costs and benefits from the
A company is investigating the benefit of investing in the development of a new product. The following are the expected costs and benefits from the new product. [1] Cost of development is estimated to be $100,000 for one year [7 The total tooling cost is $45,000 for 9 months and the first payment is 6 months after the start of the program. [1] The total cost of testing, which will start 3 months before the tooling is complete, is $50,000 and the testing will last 6 months (1) The ramp-up cost is $25,000 for 3 months and will start in the middle of the testing. [7] Marketing will start 6 months before completion of testing. The marketing cost is $100,000/ year for one year [1] Manufacturing will be launched after a year and a half from the program start. The cost of manufacturing is $3/ product [1] The selling price is $12/ product [7] The marketing team has good indication that they can sell 25,000 items per year for 3 years [7] Assume a discount rate of 10% per year. Should the company invest in the product development? (15 Marks) A company is investigating the benefit of investing in the development of a new product. The following are the expected costs and benefits from the new product. [1] Cost of development is estimated to be $100,000 for one year [7 The total tooling cost is $45,000 for 9 months and the first payment is 6 months after the start of the program. [1] The total cost of testing, which will start 3 months before the tooling is complete, is $50,000 and the testing will last 6 months (1) The ramp-up cost is $25,000 for 3 months and will start in the middle of the testing. [7] Marketing will start 6 months before completion of testing. The marketing cost is $100,000/ year for one year [1] Manufacturing will be launched after a year and a half from the program start. The cost of manufacturing is $3/ product [1] The selling price is $12/ product [7] The marketing team has good indication that they can sell 25,000 items per year for 3 years [7] Assume a discount rate of 10% per year. Should the company invest in the product development? (15 Marks)
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