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.

Question

Quizplus · Accepted Answer

NPV = -$15,000 + $12,700/1.1 + $6,300/1.1² = $1,752.07PI = ($12,700/1.1 + $6,300/1.1²)/$15,000 = 1.12IRR = -$15,000 + $12,700/(1 + IRR)+ $6,300/(1 + IRR)²IRR = 19.74%

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