Suppose you were asked to decide whether or not a new consumer product should be launched....

 

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Suppose you were asked to decide whether or not a new consumer product should be launched. Based on projected sales and costs, you can expect that the cash flows over the five year life of the project will be 2000 tkr in the first two years, 4000 tkr in the next two years, and 4500 tkr in the last year. The initial investment is 10000 tkr, to begin the production and after the project is done you can sell the equipment 500 tkr. Based on corporate policy, the cost of capital for evaluating new products is 10%. Should the project be launched? Why or why not? Calculate and give a clear answer for each one of the decision criteria below: (10 points) a. If the decision is based on the project's NPV? b. If the decision is based upon pay-back-time? And the hurdle rate for pay-back is 3 years. c. If the decision is based on the project's IRR? Suppose you were asked to decide whether or not a new consumer product should be launched. Based on projected sales and costs, you can expect that the cash flows over the five year life of the project will be 2000 tkr in the first two years, 4000 tkr in the next two years, and 4500 tkr in the last year. The initial investment is 10000 tkr, to begin the production and after the project is done you can sell the equipment 500 tkr. Based on corporate policy, the cost of capital for evaluating new products is 10%. Should the project be launched? Why or why not? Calculate and give a clear answer for each one of the decision criteria below: (10 points) a. If the decision is based on the project's NPV? b. If the decision is based upon pay-back-time? And the hurdle rate for pay-back is 3 years. c. If the decision is based on the project's IRR?

Answer rating: 100% (QA)

a To determine whether the project should be launched based on NPV Net Present Value we need to calculate the net cash flows and discount them to pres... View the full answer