Answered step by step
Verified Expert Solution
Question
00
1 Approved Answer
Q2. The directors of Foresight Industries are currently considering launching a new product. The production of the new product involves the purchase of new machinery.
Q2. The directors of Foresight Industries are currently considering launching a new product. The production of the new product involves the purchase of new machinery. The following information is available for the project: Product 1 Probabilities 0.3 0.15 0.4 0.15 Profit Year 1 35,000 56,000 110,000 140,000 Profit Year 2 52,500 84.000 165,000 210,000 Profit Year 3 47,250 75,600 148,500 189,000 Cost (Immediate Outlay) 120,000 Residual/Scrap Value 25,000 The company has an estimated cost of capital of 10% and employs the straight-line method of depreciation for all fixed assets when calculating net profit. Neither project would increase the working capital of the company. The company has sufficient funds to meet all capital expenditure requirements. Required: a) Calculate the expected profit for each year of the life of product 1 b) Calculate for product 1: i) The net present value ii) The payback period (9 marks) (10 marks) (6 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started