Problem 1

XYZ company is considering launching a new product. The financial information related to the new product is as follows:

Expected unit sales of the new product are 50,000 units

Expected selling price of the new product is $300/ unit

Cost to manufacture the new product is $150/ unit

XYZ will need to spend $2 million per year on sales and marketing for this new product.

In order to produce the product XYZ will have to purchase a new piece of equipment that cost $5 million with a useful life of five years

The product will be sold over a five year period

XYZs tax rate is 40%

XYZs cost of capital is 12%

Requirements

-Construct a cash flow forecast for XYZs new product

-Based on the cash flow forecast calculate the NPV of the project

-Based on the Projects NPV should XYZ invest in the new product?

(use Excel formulas and steps)