Your company just spent $10 million developing a new product - the Aaron Rodgers bobble-head toy and you have to decide whether or not to launch the product. Your marketing experts are projecting the new toy's sales will create 1.5 million in FCF the first year, and these FCFS will grow by 2% per year forever. However, they also point out that launching the new product will reduce your FCFS from sales of another product - the Brett Favre bobble-head toy - by $1 million per year forever. The appropriate discount rate for the sale of bobble-head toys is 12%. Should you go ahead and launch the new product? And how much firm value would launching the product create (or destroy)? Yes, launch product, creates $15 million in value Yes, launch product, creates $6.67 million in value No, don't launch product, destroys $3.33 million in value Yes, launch product, creates $5 million in value

Your company just spent $10 million developing a new product - the Aaron Rodgers bobble-head toy and you have to decide whether or not to launch the product. Your marketing experts are projecting the new toy's sales will create 1.5 million in FCF the first year, and these FCFS will grow by 2% per year forever. However, they also point out that launching the new product will reduce your FCFS from sales of another product - the Brett Favre bobble-head toy - by $1 million per year forever. The appropriate discount rate for the sale of bobble-head toys is 12%. Should you go ahead and launch the new product? And how much firm value would launching the product create (or destroy)? Yes, launch product, creates $15 million in value Yes, launch product, creates $6.67 million in value No, don't launch product, destroys $3.33 million in value Yes, launch product, creates $5 million in value

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 1aM

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