You Are Considering a New Product Launch

question 72

Multiple Choice

You are considering a new product launch. The project will have an initial cost for fixed assets of $1,150,000, a three-year life, and no salvage value; depreciation is straight-line to zero. Sales are projected at 230 units per year, price per unit will be $7,500, variable cost per unit will be $3,900, and fixed costs will be $122,000 per year. The required return is 14.5 percent and the relevant tax rate is 24 percent. Based on your experience, you think the unit sales and price are accurate within a ±2 percent range while costs may vary by ±3 percent. What is the worst-case NPV?

• A) −$117,907
• B) $156,446
• C) −$78,517
• D) $162,134
• E) −$118,020

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Definitions:

Corpus Luteum

Yellow endocrine body formed in the ovary in the site of a ruptured vesicular follicle immediately after ovulation; secretes progesterone and estrogen.

Testosterone

A primary male sex hormone and an anabolic steroid, important for male sexual and reproductive development, as well as muscle and bone mass.

Ligaments

Tough, fibrous tissues that connect bones to other bones, providing joint stability and support.

Endometrium

The inner lining of the uterus that thickens during the menstrual cycle to prepare for potential implantation of an embryo, and sheds during menstruation if no pregnancy occurs.