The Nu-Tech Company Has a New Project Available to It

question 27

Essay

The Nu-Tech Company has a new project available to it at a cost of $6,000,000. If the project is accepted,the company will be able to sell 13,000 personal organizers at $172 in net cash flow for each of the next five years. Nu-Tech's discount rate is 15%. What is the NPV of the investment?
The executives of Nu-Tech are concerned about the potential of future competition and a subsequent drop in sales and price. If after two years you can dispose of the asset for $1,000,000 at what price would it make sense to abandon the project?
A._15,2 + $1,000,000 * (1/1.15)² + X (A._15,3)(1/1.15)²
X = $800,627.60; if they sell 13,000 units they should abandon the project if the price drops below $61.59 in years three and out.
A._15,5= $-6,000,000 + $7,495,418.80 = $1,495,418.80
Abandon: 0 = $-6,000,000 + $2,236,000 *

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Definitions:

Financing Activities

Transactions and events where a company either raises funds through borrowing or repaying debts, or issues and repurchases its own shares.

Order of Presentation

the sequence in which financial information is organized and presented in financial statements, typically following accounting standards or regulations.

Cash Equivalents

Short-term, highly liquid investments that are easily convertible to a known amount of cash and are subject to insignificant risk of changes in value.

Cheques Outstanding

Cheques that have been written and recorded in the payer's accounting system but have not yet been cashed or cleared by the receiving bank.