B Com Exam  >  B Com Questions  >  1. Company X is considering a new product lin... Start Learning for Free
1. Company X is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investment of Rs 7,00,000 at time 0 and Rs 10,00,000 in year 1. After tax cash inflows of Rs 2,50,000 are expected in year 2, Rs 3,00,000 in year 3, Rs 3,50,000 in year 4, and Rs 4,00,000 each year thereafter through year 10. If the required rate of return in 15%, what is the NPV of the project? Is it acceptable?
Most Upvoted Answer
1. Company X is considering a new product line to supplement its range...
NPV Calculation for New Product Line of Company X


Cash Flows


  • Initial cash investment at time 0: Rs 7,00,000

  • Cash investment in year 1: Rs 10,00,000

  • Cash inflow in year 2: Rs 2,50,000

  • Cash inflow in year 3: Rs 3,00,000

  • Cash inflow in year 4: Rs 3,50,000

  • Cash inflow from year 5 to year 10: Rs 4,00,000



Required Rate of Return

The required rate of return is 15%.


NPV Calculation

To calculate the NPV of the project, we need to discount the cash flows to their present values:



  • Initial cash investment at time 0: -Rs 7,00,000

  • Cash investment in year 1: -Rs 10,00,000/(1+0.15)^1 = -Rs 8,69,565

  • Cash inflow in year 2: Rs 2,50,000/(1+0.15)^2 = Rs 1,94,967

  • Cash inflow in year 3: Rs 3,00,000/(1+0.15)^3 = Rs 2,04,454

  • Cash inflow in year 4: Rs 3,50,000/(1+0.15)^4 = Rs 2,12,320

  • Cash inflow from year 5 to year 10: Rs 4,00,000*[(1-(1+0.15)^-6)/0.15]/(1+0.15)^5 = Rs 19,02,523



Adding up the present values of all cash flows, we get:


NPV = -Rs 7,00,000 - Rs 8,69,565 + Rs 1,94,967 + Rs 2,04,454 + Rs 2,12,320 + Rs 19,02,523 = Rs 15,45,699


Decision

The NPV of the project is positive, indicating that the project is expected to generate a return that exceeds the required rate of return of 15%. Therefore, the project is acceptable.
Community Answer
1. Company X is considering a new product line to supplement its range...
Explore Courses for B Com exam
1. Company X is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investment of Rs 7,00,000 at time 0 and Rs 10,00,000 in year 1. After tax cash inflows of Rs 2,50,000 are expected in year 2, Rs 3,00,000 in year 3, Rs 3,50,000 in year 4, and Rs 4,00,000 each year thereafter through year 10. If the required rate of return in 15%, what is the NPV of the project? Is it acceptable?
Question Description
1. Company X is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investment of Rs 7,00,000 at time 0 and Rs 10,00,000 in year 1. After tax cash inflows of Rs 2,50,000 are expected in year 2, Rs 3,00,000 in year 3, Rs 3,50,000 in year 4, and Rs 4,00,000 each year thereafter through year 10. If the required rate of return in 15%, what is the NPV of the project? Is it acceptable? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about 1. Company X is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investment of Rs 7,00,000 at time 0 and Rs 10,00,000 in year 1. After tax cash inflows of Rs 2,50,000 are expected in year 2, Rs 3,00,000 in year 3, Rs 3,50,000 in year 4, and Rs 4,00,000 each year thereafter through year 10. If the required rate of return in 15%, what is the NPV of the project? Is it acceptable? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 1. Company X is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investment of Rs 7,00,000 at time 0 and Rs 10,00,000 in year 1. After tax cash inflows of Rs 2,50,000 are expected in year 2, Rs 3,00,000 in year 3, Rs 3,50,000 in year 4, and Rs 4,00,000 each year thereafter through year 10. If the required rate of return in 15%, what is the NPV of the project? Is it acceptable?.
Solutions for 1. Company X is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investment of Rs 7,00,000 at time 0 and Rs 10,00,000 in year 1. After tax cash inflows of Rs 2,50,000 are expected in year 2, Rs 3,00,000 in year 3, Rs 3,50,000 in year 4, and Rs 4,00,000 each year thereafter through year 10. If the required rate of return in 15%, what is the NPV of the project? Is it acceptable? in English & in Hindi are available as part of our courses for B Com. Download more important topics, notes, lectures and mock test series for B Com Exam by signing up for free.
Here you can find the meaning of 1. Company X is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investment of Rs 7,00,000 at time 0 and Rs 10,00,000 in year 1. After tax cash inflows of Rs 2,50,000 are expected in year 2, Rs 3,00,000 in year 3, Rs 3,50,000 in year 4, and Rs 4,00,000 each year thereafter through year 10. If the required rate of return in 15%, what is the NPV of the project? Is it acceptable? defined & explained in the simplest way possible. Besides giving the explanation of 1. Company X is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investment of Rs 7,00,000 at time 0 and Rs 10,00,000 in year 1. After tax cash inflows of Rs 2,50,000 are expected in year 2, Rs 3,00,000 in year 3, Rs 3,50,000 in year 4, and Rs 4,00,000 each year thereafter through year 10. If the required rate of return in 15%, what is the NPV of the project? Is it acceptable?, a detailed solution for 1. Company X is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investment of Rs 7,00,000 at time 0 and Rs 10,00,000 in year 1. After tax cash inflows of Rs 2,50,000 are expected in year 2, Rs 3,00,000 in year 3, Rs 3,50,000 in year 4, and Rs 4,00,000 each year thereafter through year 10. If the required rate of return in 15%, what is the NPV of the project? Is it acceptable? has been provided alongside types of 1. Company X is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investment of Rs 7,00,000 at time 0 and Rs 10,00,000 in year 1. After tax cash inflows of Rs 2,50,000 are expected in year 2, Rs 3,00,000 in year 3, Rs 3,50,000 in year 4, and Rs 4,00,000 each year thereafter through year 10. If the required rate of return in 15%, what is the NPV of the project? Is it acceptable? theory, EduRev gives you an ample number of questions to practice 1. Company X is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investment of Rs 7,00,000 at time 0 and Rs 10,00,000 in year 1. After tax cash inflows of Rs 2,50,000 are expected in year 2, Rs 3,00,000 in year 3, Rs 3,50,000 in year 4, and Rs 4,00,000 each year thereafter through year 10. If the required rate of return in 15%, what is the NPV of the project? Is it acceptable? tests, examples and also practice B Com tests.
Explore Courses for B Com exam
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
10M+ students study on EduRev