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John Moffat.
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- March 4, 2017 at 2:01 pm #375537
Bat has spent $2 million developing a new product and a further $800,000 on market research to find out whether a market launch would be worth undertaking. The findings of the market research were as follows.
(a) To launch the product on the market, the company would have to spend a further $800,000 on equipment. This would be depreciated over three years by the straight-line method, and would have an estimated resale value of $200,000 at the end of this time.(b) The product would have a life of just three years, and profits after depreciation would be $500,000 in the first year, $600,000 in the second year and $300,000 in the third year.
(c) There would be an initial investment of $120,000 in working capital in the first year and a further $140,000 of working capital would be needed in Year 2.
(d) Instead of investing in the product launch, the company could sell the rights to the product to another company for $500,000.
What are the estimated net cash flows from this project?
a $560,000
b $800,000
c $900,000
d $960,000March 4, 2017 at 3:15 pm #375550Please do not simply set test questions and expect an answer.
You must have an answer in the same book in which you found the question. Ask whatever it is in the answer that you are not clear about and then I will try and help you.
This is not a P4 level question. It is F9 and you need to watch my free F9 lectures on investment appraisal.
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