Webster's wants to introduce a new product that has a start-up cost of $7,800.The product has a 2-year life and will provide cash flows of $6,700 in Year 1 and $4,300 in Year 2.The required rate of return is 14 percent.Should the product be introduced? Why or why not?
A)Yes; the NPV is $1,108.15.
B)Yes; the IRR is 12.97 percent.
C)Yes; the IRR is 28.72 percent.
D)Yes; the NPV is $1,409.27.
E)No; the IRR is 12.94 percent.

Question

Quizplus · Accepted Answer

NPV = -$7,800 + $6,700 / 1.14 + $4,300 / 1.14² = $1,385.90 0 = -$7,800 + $6,700 / (1 + IRR)+ $4,300 / (1 + IRR)² IRR = 28.72%

Webster's Wants to Introduce a New Product That Has a Start-Up