Webster's Wants to Introduce a New Product That Has a Startup

question 47

Multiple Choice

Webster's wants to introduce a new product that has a startup cost of $15,000.The product has a 2-year life and will provide cash flows of $12,700 in Year 1 and $6,300 in Year 2.The required rate of return is 10 percent.Should the product be introduced? Why or why not?

• A)Yes;The PI is 1.04.
• B)No;The PI is .90.
• C)Yes;The IRR is 19.74 percent.
• D)Yes;The NPV is $851.24.
• E)No;The IRR is 8.78 percent.

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Definitions:

Optimum Length

The most favorable or effective size or duration of something, based on specific objectives, conditions, or requirements.

Business Plan

A detailed document outlining the objectives of a business, strategies to achieve them, and the timeframe for success.

Small Business

An independently owned and operated company that is limited in size and in revenue depending on the industry.

Overly Optimistic

A tendency to expect the best possible outcome or overly positive scenarios without adequately considering potential risks and realistic challenges.