Question

The net revenue for a new product will be MYR300K this year, and it will grow...



The net revenue for a new product will be MYR300K this year, and it will grow at 20% per year for 3 years. Then, it will begin dropping by 15% per year. After 7 years, there will be no demand. The first cost to complete design and tooling will be MYR950K. The interest rate is 10%. What is the present worth of the new product?

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Answer #1

Present Value of Cash Inflows @ 10%

Year Revenue Present Value
1 300,000.00 272,727.27
2 360,000.00 297,520.66
3 432,000.00 324,567.99
4 518,400.00 354,074.18
5 440,640.00 273,602.77
6 374,544.00 211,420.32
7 318,362.40 163,370.25
      1,897,283.45

Present Worth of New Product

Present Value of Cash Inflows       1,897,283.45
Design and Tooling Cost         950,000.00
Present Worth of new product         947,283.45

Note: I have used the present value factors from excel. If present value factors are provided in your question, then please use the same factors or you can let me know the same in comment section and I will edit your answer accordingly.

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