Imagine you want to start up a company to manufacture and sell Wildcat sunglasse

Question

Imagine you want to start up a company to manufacture and sell Wildcat sunglasses. You've done your homework and estimate design and launch costs to be $80,000. You expect to sell 500 pairs in the first year, 1,000 pairs in second year, and 3,000 pairs in the following three years. The sales price will be $89 and each pair will cost $70 to produce and market. If your required return is 15%, what is your NPV? (Round your answer to the nearest cent; e.g., $100,000.01) a. $29,543.89 Ob. $34,567.81 c. $41,035.03 d. $58,746.61 D e. None of the above

Explanation / Answer

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=9500/1.15+19000/1.15^2+57000/1.15^3+57000/1.15^4+57000/1.15^5

=$121035.03

NPV=Present value of inflows-Present value of outflows

=$121035.03-$80000

=$41035.03(Approx).

Year Net Cash flow 0 (80000) 1 500*(89-70)=$9500 2 1000*(89-70)=$19000 3 3000*(89-70)=$57000 4 3000*(89-70)=$57000 5 3000*(89-70)=$57000

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