Question

Entrepreneurial Inc. is evaluating a new product launch that will cost it $26982 to launch. The...

Entrepreneurial Inc. is evaluating a new product launch that will cost it $26982 to launch. The company projects it will generate $693529 in annual operating cash flow at the end of each of the next 3 years, after which it will discontinue the product. The appropriate discount rate for the product is 16%.

If after the first year, the product is doing worse than expected, then the company projects annual cash flows will only be $395593 for the remaining two years of the project. What would be the value of the product line at that time (i.e. one year from now) in such a case?

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Answer #1
Year Investment Return Net Benefit/Cost
0 26982 -26982               -26,982
1 0 693529 693529             5,97,870
2 0 395593 395593             2,93,990
3 0 0                          -  
NPV at end of Year 2             8,64,878
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