Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. melchers has come up with a new gadget prototype a

Melchers has come up with a new gadget prototype and is ready to go ahead...

90.2K

Verified Solution

Question

Finance

Melchers has come up with a new gadget 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 $560,000. The management team believes that there is a 40% chance that the test marketing will be successful (which also means 60% chance of test marketing failure) and that there will be sufficient demand for the new gadget. If the test-marketing phase is successful, then Melchers will invest $3.1 million in year one to build a plant that will generate expected annual after-tax cash flows of $600,000 in perpetuity beginning in year two. If the test marketing is not successful, Melchers can still go ahead and build the new plant, but the expected annual after-tax cash flows would be only $220,000 in perpetuity beginning in year two. Melchers has the option to stop the project at any time and sell the prototype gadget to a competitor for $400,000. Melchers's cost of capital is 11.20%. Assuming that Melchers has the ability to sell the prototype in year one for $400,000, what is the NPV of Melchers' project?

$590,749

$549,749

$508,749

$467,749

$426,749

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Finance
1.2K views

It is desired to compare the after-tax economics of two mutually exclusive alternatives with the following...

Mechanical Engineering
1.2K views

Manufacturing Technology 1. Find out at least 3 types method to produce for powder technology 2. Hot Pressing...

Basic Math
1.2K views

Suppose a flu epidemic has broken out in all math 120 courses at your school....

Statistics
1.2K views

de NASA s Goddard Institute for Space Studies GISS allows you to download historical temperature...

Accounting
1.2K views

Carla Vista Company uses special journals and a...

Accounting
1.2K views

Question 3. There are eight sources of positive law in Canada. The Sale of Goods...

Accounting
1.2K views

1. A stock index is trading at 1,544 with r = 1.00% , q =...

Accounting
1.2K views

Required information The following information applies to the questions displayed below) Wamerwoods Company uses a...

Accounting
1.2K views

A company's balance sheet shows: cash $24,200, accounts receivable $17,100, office equipment $52,750, and accounts...

Accounting
1.2K views

Cadence se dirige al Servicio de automviles domsticos y pide que le reemplacen una llanta...

Finance
1.2K views

Hedging Strategies using Index Futures On the 15th of January 2019, an investor holds an...

Accounting
1.2K views

Common Stockholders' Profitability Analysis A company reports the following: Net income $260,000...