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A firm must decide whether or not to pursue a new product line. The new product will have start-up costs, operational costs, and incoming cash
A firm must decide whether or not to pursue a new product line. The new product will have start-up costs, operational costs, and incoming cash flows over six years. This project will have an immediate cash outflow of $100,000.00 in the first year (TO). This will be an aggregate of labour, training and machinery costs. There will be no salvage value for the machinery after Y6. Other cash outflows for the remaining six years, T1 to T6, are expected to be $5000.00 per year. These are a combination of Total Fixed and Total Variable costs. (TC = FC + VC); VC = Quantity Produced X Unit Cost to Produce; Cash inflows from the initiative are expected to be $30,000.00 per year for the next six years. (Y1 to Y6). All cash flows are after tax, and there is no income after Y6. The required rate of return is 10%. Calculate the Present Value and Net Present Value of this investment
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