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A company is evaluating a new product proposal that Will last 6 years.
The initial outlay is $2millions . The proposed product selling price is $220 per unit and variable costs are $55 per unit and sales are planned to br 2750 units each year . The incremental cash fixed costs for the product will be $3750 per annum .
What is the NPV of this project is the cost of capital is 10% .There is no point in simply setting me test questions and expecting an answer.
You must have an answer in the same book in which you found the question (I assume you are obviously using a Revision Kit from one of the ACCA approved publishers) and that you have watched my free lectures on investment appraisal.Ask about whatever it is in the answer that you are not clear about, and then I will explain.
And do watch the free lectures – they are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
Multiply the contribution per unit by the number of units, and subtract the incremental fixed costs.
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I struggled with this question also.
It’s basically total contribution minus the fixed costs to get the annual cash flows.
Then with that you’re able to multiple by the annuity factor, then less the initial outlay, to get your NPV.
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