A corporation must decide whether to introduce a new product line. The company will have immediate costs of 100,000 at t = 0. Recall, a cost is a negative for outgoing cash flow, thus this cash flow is represented as 100,000. The company assumes the product will provide equal benefits of 10,000 for each of 12 years beginning at t = 1. For simplicity, assume the company will have no outgoing cash flows after the initial 100,000 cost. This also makes the simplifying assumption that the net cash received or paid is lumped into a single transaction occurring on the last day of each year. At the end of the 12 years the product no longer provides any cash flow and is discontinued without any additional costs. Assume that the effective annual discount rate is 10%. The NPV is equal to

23,000

-31,863.09

31,863.09

-50,863.09