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Question: dcf example a company is considering the launch of a...

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DCF Example: A company is considering the launch of a new product: Investment required in equipment: £150000; Project life cycle: 5 years, Value of equipment in year 6: £10000, Cash inflow as follows: Year 1 2 £000 60 62 65 70 70 4 5 An existing product can be discontinued immediately or retained instead of the new product for five years. If retained a cash inflow of £12000 pa would be expected Discount rate (cost of capital) is 15% pa. Calculate the expected net present value of the new product (NPV £67,000) Advise the company whether to launch the new product or retain the existing one. (New product generates NPV £67k + £10k equipment value at end; NPV of exisitng product £40k- advise launch new product)
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