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A wind turbine company is thinking of developing a new turbine, the XP9. The company estimates that creating the XP9 will require an initial
A wind turbine company is thinking of developing a new turbine, the XP9. The company estimates that creating the XP9 will require an initial investment of $125,000 today, $250,000 of engineering related costs at the end of the first year, and $49,000 of marketing costs at the end of the second year in order to be successful. However, the company estimates that sales will be increased in years 3 through 10 by $75,000 each year. The company's current cost of capital is 15 percent. a. What is the net present value of the XP9? b. What is the net present value if sales are only increased by $50,000 in years 3 through 10? c. Using the $75,000 estimate of the increase in sales, how does the net present value calculated in part a change if the cost of capital is increased to 18 percent?
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