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question 29

Multiple Choice

Use the information for the question(s) below.
Kinston Industries has come up with a new mountain bike prototype and is ready to go ahead with pilot production and test marketing.The pilot production and test marketing phase will last for one year and cost $500,000.Your management team believes that there is a 50% chance that the test marketing will be successful and that there will be sufficient demand for the new mountain bike.If the test-marketing phase is successful,then Kinston Industries will invest $3 million in year one to build a plant that will generate expected annual after-tax cash flows of $400,000 in perpetuity beginning in year two.If the test marketing is not successful,Kinston can still go ahead and build the new plant,but the expected annual after-tax cash flows would be only $200,000 in perpetuity beginning in year two.Kinston has the option to stop the project at any time and sell the prototype mountain bike to an overseas competitor for $300,000.Kinston's cost of capital is 10%.
-Assuming that Kinston has the ability to sell the prototype in year one for $300,000,the NPV of the Kinston Industries Mountain Bike Project is closest to:

Comprehend the challenges and complexity of global supply chains.

Identify factors influencing transportation costs, including product susceptibility to loss and damage.

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Explain modal selection and its key determinants in transport logistics.

Definitions:

SWOT Analysis

A strategic planning tool that evaluates an organization's strengths, weaknesses, opportunities, and threats.

External Environment

The external factors, forces, situations, and events outside the organization that can affect its performance.

Internal Environment

Factors within a company such as culture, employees, policies, and internal relationships, that influence its operations and performance.

Fiscal Year

A twelve-month period used for accounting purposes and preparing financial statements.