A toy company is planning to make a new game and expects that the demand for...

 

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A toy company is planning to make a new game and expects that the demand for the game will last for 5 years. Setting up a new production line will cost $250,000; there will be no salvage value. The game will sell for $50, and cost $25 to produce. The company plans to spend $10,000 per year to market the game. The company has a WACC of 10%, and a tax rate of 25%. The marketing department initially estimated sales would be 10,000 units per year. The NPV of the project was estimated to be approximately $480,000, so the project was given the green light to proceed. The business development department thought that the project may merit a lower cost of capital than the company's WACC. They recommended that a discount rate of 8% may be more appropriate. What is the NPV at this lower rate? A toy company is planning to make a new game and expects that the demand for the game will last for 5 years. Setting up a new production line will cost $250,000; there will be no salvage value. The game will sell for $50, and cost $25 to produce. The company plans to spend $10,000 per year to market the game. The company has a WACC of 10%, and a tax rate of 25%. The marketing department initially estimated sales would be 10,000 units per year. The NPV of the project was estimated to be approximately $480,000, so the project was given the green light to proceed. The business development department thought that the project may merit a lower cost of capital than the company's WACC. They recommended that a discount rate of 8% may be more appropriate. What is the NPV at this lower rate?

Answer rating: 100% (QA)

To calculate the Net Present Value NPV at a different discount rate we first need to calculate the y... View the full answer