Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried to last longer). Pappy’s paid $195,
Posted: Tue Nov 16, 2021 8:23 am
Pappy’s Potato has come up with a new product, the Potato Pet
(they are freeze-dried to last longer). Pappy’s paid $195,000 for a
marketing survey to determine the viability of the product. It is
felt that Potato Pet will generate sales of $910,000 per year. The
fixed costs associated with this will be $234,000 per year, and
variable costs will amount to 22 percent of sales. The equipment
necessary for production of the Potato Pet will cost $1,000,000 and
will be depreciated in a straight-line manner for the four years of
the product life (as with all fads, it is felt the sales will end
quickly). This is the only initial cost for the production. Pappy's
has a tax rate of 25 percent and a required return of 15
percent.
Answer:
A) Payback period = ______ years
B) NPV = ________
C) IRR = ________%
(they are freeze-dried to last longer). Pappy’s paid $195,000 for a
marketing survey to determine the viability of the product. It is
felt that Potato Pet will generate sales of $910,000 per year. The
fixed costs associated with this will be $234,000 per year, and
variable costs will amount to 22 percent of sales. The equipment
necessary for production of the Potato Pet will cost $1,000,000 and
will be depreciated in a straight-line manner for the four years of
the product life (as with all fads, it is felt the sales will end
quickly). This is the only initial cost for the production. Pappy's
has a tax rate of 25 percent and a required return of 15
percent.
Answer:
A) Payback period = ______ years
B) NPV = ________
C) IRR = ________%