Question

X Company is considering launching a new product. After conducting a market research study that cost...

X Company is considering launching a new product. After conducting a market research study that cost $4,600, the company estimates sales of 8,500 units in each of the next 4 years, with a contribution margin of $6.00 per unit. Additional fixed costs will be $17,160. Equipment costing $120,000 will have to be purchased; the equipment will have no salvage value at the end of 4 years.

What is the internal rate of return of launching the new product?  [Submit your rate as a decimal: .XX]

Homework Answers

Answer #1
Units Per Year 8500
Contribution Margin 6.00
Total Contribution Margin 51000
Less: Additional Fixed Cost 17160
Net Cash Inflow PA 33840
Year Cash Flow Discount Factor @ 5% Present Value Discount Factor @ 4% Present Value
0 -120000 1.00 -1,20,000.0 1.00 -1,20,000
1 33840 0.95 32,228.6 0.96 32,538
2 33840 0.91 30,693.9 0.92 31,287
3 33840 0.86 29,232.3 0.89 30,084
4 33840 0.82 27,840.3 0.85 28,927
-5.0 2,836
Basis the above working, The IRR is 5%
Note: Market Survey is a Sunk Cost and is Irrelevant in Decision
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
X Company is considering launching a new product. After conducting a market research study that cost...
X Company is considering launching a new product. After conducting a market research study that cost $5,000, the company estimates sales of 7,900 units in each of the next 4 years, with a contribution margin of $6.10 per unit. Additional fixed costs will be $11,958. Equipment costing $120,000 will have to be purchased; the equipment will have no salvage value at the end of 4 years. What is the internal rate of return of launching the new product?
Doce Corp. is considering launching a new product. The new manufacturing equipment will cost $5.9 million...
Doce Corp. is considering launching a new product. The new manufacturing equipment will cost $5.9 million and production and sales will require an initial $2.9 million investment in net operating working capital. Doce spent and expensed $1 million last year on research and product development. Rather than build a new manufacturing facility, Doce plans to install the equipment in a building it owns but it is not now using. The building could be sold for $29 million after taxes and...
Your company has been doing well, reaching $1.09 million in earnings, and is considering launching a...
Your company has been doing well, reaching $1.09 million in earnings, and is considering launching a new product. Designing the new product has already cost $539,000. The company estimates that it will sell 812,000 units per year for $3.05 per unit and variable non-labor costs will be $1.16 per unit. Production will end after year 3. New equipment costing $1.05 million will be required. The equipment will be depreciated using 100% bonus depreciation under the 2017 TCJA. You think the...
Your company has been doing well, reaching $1.15 million in earnings, and is considering launching a...
Your company has been doing well, reaching $1.15 million in earnings, and is considering launching a new product. Designing the new product has already cost $510,000. The company estimates that it will sell 787,000 units per year for $2.93 per unit and variable non-labor costs will be $1.07 per unit. Production will end after year 3. New equipment costing $1.17 million will be required. The equipment will be depreciated using 100% bonus depreciation under the 2017 TCJA. You think the...
Your company has been doing​ well, reaching $1.18 million in​ earnings, and is considering launching a...
Your company has been doing​ well, reaching $1.18 million in​ earnings, and is considering launching a new product. Designing the new product has already cost $505,000. The company estimates that it will sell 754,000 units per year for $2.97per unit and variable​ non-labor costs will be $1.08 per unit. Production will end after year 3. New equipment costing  $1.1 million will be required. The equipment will be depreciated using​ 100% bonus depreciation under the 2017 TCJA. You think the equipment...
Problem 11-01 Investment Outlay Talbot Industries is considering launching a new product. The new manufacturing equipment...
Problem 11-01 Investment Outlay Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $1 million investment in net operating working capital. The company's tax rate is 40%. What is the initial investment outlay? Write out your answer completely. For example, 2 million should be entered as 2,000,000. $ The company spent and expensed $150,000 on research related to the new project last year. Would this...
XYZ Company is considering the purchase of new equipment that will cost $130,000. The equipment will...
XYZ Company is considering the purchase of new equipment that will cost $130,000. The equipment will save the company $38,000 per year in cash operating costs. The equipment has an estimated useful life of five years and a zero expected salvage value. The company's cost of capital is 10%. Required: 1) Ignoring income taxes, compute the net present value and internal rate of return. Round net present value to the nearest dollar and round internal rate of return to the...
Company A is considering launching a new clothing line. The project would require a $25,000,000 capital...
Company A is considering launching a new clothing line. The project would require a $25,000,000 capital investment and will be depreciated (straight-line to zero) over its 4-year life. The company discovers at the end of the project that it will be able to sell the equipment for $5,300,000 (salvage value). Incremental sales are expected to be $14,500,000 annually for the 4-year period with costs (excluding depreciation) of 55% of sales. The project would also require the company to increase inventory...
Your firm is considering introducing a new product for which returns are expected to be as...
Your firm is considering introducing a new product for which returns are expected to be as follows: Year 1 to Year 3 (Inclusive): $2,000 per year Year 4 to Year 8 (Inclusive): $5,000 per year Year 9 to Year12 (Inclusive): $3,000 per year The introduction of the product requires an immediate outlay (expenditure) of $15,000 for equipment estimated to have a salvage value of $2,000 after 12 years. Compute the Internal Rate of Return (IRR) for the launch of this...
You are considering launching a new product, and you believe you can sell 5000 these per...
You are considering launching a new product, and you believe you can sell 5000 these per year for 5 years after which time this product line will shut down. The product would sell for $100 each, with variable costs of $60 for each one produced, and annual fixed costs associated with production would be $100,000. In addition, there would be a $250000 initial expenditure associated with the purchase of new production equipment. It is assumed this initial expenditure will be...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT