Question
A new marketing project requires initial research and development costs of $950,000 today with further investments of $190,000 and $142,500 in the fourth and sixth year, respectively. Initially the project will lose $380,000 in its first year and then earn profits of $427,500 for the next four years followed by profits of $209,000 in the last two years. At the end of the project, its capital goods can be sold for an estimated $95,000. If the cost of capital is 11%, should the marketing project be pursued?
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Answer to a math question A new marketing project requires initial research and development costs of $950,000 today with further investments of $190,000 and $142,500 in the fourth and sixth year, respectively. Initially the project will lose $380,000 in its first year and then earn profits of $427,500 for the next four years followed by profits of $209,000 in the last two years. At the end of the project, its capital goods can be sold for an estimated $95,000. If the cost of capital is 11%, should the marketing project be pursued?
Andrea
4.586 Answers
The Net Present Value (NPV) of the marketing project is approximately -$2,855,197.38. Since the NPV is negative, the project is not financially viable according to this analysis, and it should not be pursued based on the current financial projections and the 11% cost of capital.
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