Innovation Products Inc is evaluating a 4 year project to introduce a hands free beer drin
Innovation Products Inc is evaluating a 4 year project to introduce a hands free beer drinking product to the marketplace. Its present product line requires at least one hand for drinking and the FDA is mandating a hands-free system by 2011.
The project plan indicates that an initial $15,000 investment of engineering and production effort to launch the product. The sales manager says that 5000 devices will be sold annually for $3 over the first three years of the project. The production manager says the production cost will be $2 each. Annual inflation is expected to be 3% over the life of the project and corporate rate of return of 1%. Assume that the production investment occurs at the beginning of the year and the sales income comes at the end of the year.
What is the payback period?
What is the net present value through the first
four years of production?
What is the ROI?
For 5 years