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Carsen Sorensen controller of Thayn Company just received the following data associated with production of a new product Expected annual revenues: $750000 Projected product life cycle

Carsen Sorensen, controller of Thayn Company, just received the following data associated with production of a new product: • Expected annual revenues: $750,000 • Projected product life cycle: five years • Equipment: $800,000 with a salvage value of $100,000 after five years • Expected increase in working capital: $100,000 (recoverable at the end of five years) • Annual cash operating expenses: estimated at $450,000 • Required rate of return: 8 percent Required: 1. Estimate the annual cash flows for the new product. 2. Using the estimated annual cash flows, calculate the NPV. 3. What if revenues were overestimated by $150,000? Redo the NPV analysis, correcting for this error. Assume the operating expenses remain the same.

Jun 27 2020 View more View Less

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