Your company, For Real Cereal, is considering an opportunity to develop and introduce a new breakfast product. The product is called Cereal Killer Breakfast Bars and was developed as an alternative to cereal and milk. Based on your superior knowledge of the market, you think that this product line will last a minimum of 5 years.

Getting up and running will cost the company $800,000 for capital equipment; there was an additional $400,000 for development expenses. The equipment is expected to have a useful life of 5 years (what a coincidence). The expected sales volumes are:

-Year 1 500,000 -Year 2 700,000 -Year 3 900,000 -Year 4 850,000 -Year 5 450,000

-Unit cost is $0.245 -Profit margin is 65% on sell price -Corporate income tax rate is 25.8% -The companys cost of debt is 8% -You will finance the entire $800,000 but you do have it in cash if required; the financing will be at 9% and only 1 payment per year (5 total payments) for simplicity. 1. Is this a worthwhile program to invest in? 2. What assumptions did you make? 3. Are there any alternatives at the end of 5 years?