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

question 26

Essay

The Nu-Tech Company has a new project available to it at a cost of £6,000,000.The project that they can 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 year you can dispose of the asset for £1,000,000 at what price would it make sense to abandon the project?

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Definitions:

Unitary Elastic

In economics, it describes a situation where a change in the price of a good or service results in a proportional change in the quantity demanded or supplied.

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded by consumers at each price level.

Product

Any good, service, or idea that can be offered to a market to satisfy a want or need.

Substitutes

Products or services that can replace or be used in place of one another.