Question
A store is considering carrying a new product which will require an upfront purchase of $125,000 for inventory. Free cash flows expected as a result
A store is considering carrying a new product which will require an upfront purchase of $125,000 for inventory. Free cash flows expected as a result of this project are shown below. At the end of the final year shown, the company plans to stop selling this product and sell off the excess inventory to a discount retailer for $5,000. The company has a 12% cost of capital (i.e., the required rate of return is 12%). What is the net present value of this proposal?
Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
Initial Investment | 60,000 | 40,000 | 30,000 | 20,000 | 10,000 |
Enter your answer as a monetary amount rounded to four decimal places, but without the currency symbol. For example, if your answer is $90.1234, enter 90.1234 If you have a negative result, enter a negative number.
A company is considering a new line which will require an initial investment of $300,000. Free cash flows expected as a result of this project are shown below. At the end of the final year shown, the company plans to sell off assets no longer needed by the project, netting $20,000 after tax. The company has a 15% cost of capital (i.e., the required rate of return is 15%).
What is the net present value of this proposal?
Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
Initial Investment | 80,000 | 85,000 | 90,000 | 95,000 | 100,000 |
Enter your answer as a monetary amount rounded to four decimal places, but without the currency symbol. For example, if your answer is $90.1234, enter 90.1234 If you have a negative result, enter a negative number.
Step by Step Solution
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Step: 1
Case 1 Net Present Value of New Product Step 1 Calculate the present value of each cash flow Year Cash Flow Discount Factor 11 012t Present Value 0 12...Get Instant Access to Expert-Tailored Solutions
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