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]

 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

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