You Are Considering a New Product Launch $\pm$ 9 Percent What Is the Worst Case NPV?
A)$3,417,907
B)$2,654,241
C)$888,618

question 16

Multiple Choice

You are considering a new product launch. The project will cost $630,000, have a 5-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 160 units per year, price per unit will be $24,000, variable cost per unit will be $12,000, and fixed costs will be $283,000 per year. The required return is 11 percent and the relevant tax rate is 34 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within $\pm$ 9 percent. What is the worst case NPV?

• A)$3,417,907
• B)$2,654,241
• C)$888,618
• D)$3,102,134
• E)$3,458,020

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Definitions:

Weighted-Average Method

An inventory costing method that assigns an average cost to each unit of inventory, calculated by dividing the total cost of goods available for sale by the total units available.

Conversion Cost

Sum of direct labor and manufacturing overhead costs, representing the costs necessary to convert raw materials into finished goods.

Process Costing

An accounting methodology used to assign costs to units of production in industries where the production process is continuous.

Weighted-Average Method

An inventory costing method that calculates the cost of goods sold and ending inventory based on the average cost of all units available.