Author Question: You manage a new product development team for an electronics manufacturer, and your firm's policy is ... (Read 55 times)

sabina · **on:** Jul 1, 2018

You manage a new product development team for an electronics manufacturer, and your firm's policy is that all new projects must pay for themselves in the first five years.

Your team has projected that the first year of the project requires an initial investment of 2 million with no revenue, the second year loss is 500,000, the net revenue for year 3 is zero, and you earn 1.8 million in both year 4 and year 5. If the opportunity cost of capital for your firm is 8, should you go ahead with this project? A) No, the expected NPV is negative
B) Yes, the expected NPV is roughly 290,000
C) Yes, the expected NPV is 1.1 million
D) We do not have enough information to answer this question.

Question 2

Suppose that a tax of 2 per unit of output is imposed on red rubber ball producers. What level of output maximizes profit?

A) -1
B) 3
C) 4.5
D) 5
E) B, C, and D are correct.