Answered

At Westonci.ca, we make it easy for you to get the answers you need from a community of knowledgeable individuals. Get immediate and reliable solutions to your questions from a community of experienced experts on our Q&A platform. Connect with a community of professionals ready to help you find accurate solutions to your questions quickly and efficiently.

William's Co. is considering spending $15,000 at Time 0 to test a new product. Depending on the test results, the firm may decide to spend $58,000 at Time 1 to start production of the product. If the product is introduced and it is successful, it will produce aftertax cash flows of $45,000 a year for Years 2 through 4. The probability of successful test and investment is 62 percent. What is the net present value at Time 0 given a 14 percent discount rate

Sagot :

Tundexi

Answer:

$10,275.03

Explanation:

Years                                                  0            1             2           3            4  

Cash flow                                     -15000  -58000   45000  45000   45000

Successful chance result (62%)  -9300   -35960    27900   27900   27900  

Considered cash flow                 -15000  -35960    27900  27900    27900

Discount factor (14%)                        1         0.877      0.769    0.675     0.592  

Present value                         -15000  (31,543.86)  21,468.14  18,831.71 16,519.04

Net present value = -$15000 - $31,543.86 + 21,468.14  + 18,831.71 + 16,519.04

Net present value = $10,275.03

We hope this information was helpful. Feel free to return anytime for more answers to your questions and concerns. We appreciate your time. Please revisit us for more reliable answers to any questions you may have. We're here to help at Westonci.ca. Keep visiting for the best answers to your questions.