This problem is another example of how NPV can be used to analyze a proposed project. Under a special licensing arrangement, X Corporation has an opportunity to market a new product for a five-year period.

The product would be purchased from the manufacturer, with X Corporation responsible for promotion and distribution costs. The licensing arrangement could be renewed at the end of the five-year period.

X Corporation estimated the following costs and revenues for the new product, and they use a 14% discount rate in their analysis. Cost of equipment needed and working capital to kick this off: $160K (now, Year 0) Overhaul of the equipment in four years: $5K (Year 4) Salvage value of the equipment in five years: $10K (Year 5) Annual revenues and costs: Sales revenues: $300K (Years 1-5) Cost of Goods Sold expenses: $125K (Years 1-5) Other out of pocket expenses: $35K (Years 1-5) Create a cash flow table with the information given. You will need to consider which of the information given are cash inflows and which are outflows. What is the NPV for this project? Should they go ahead?