SOLUTION: (b) Given your interest in sports and computers, you are considering establishing a computer games development business. You would like to run the business for the next 5 years and

Question 1089632: (b) Given your interest in sports and computers, you are considering establishing a computer games development business. You would like to run the business for the next 5 years and your required return is 18%. You would need hardware worth around $200 000 to start development and production of your first game �Super Hoop Croquet�. The equipment would be scrapped at the end of the project.
You have decided to locate your business in a regional centre rather than the city in order to lower rental costs. Your annual rent will be $30 000. The going rate for programmers in the area is $70 000 p.a. and you would employ 4 of these.
Sales for the first year are expected to be 3 700 units. Sales in units are expected to grow at 7% p.a. for the following 4 years of the project. The selling price will be around $130 per unit and the production costs will be $16 per unit. Marketing costs are expected to be 20% of annual sales and are paid at the start of each year based on the sales estimate for the year, thus in year 5 there won�t be any marketing cost. An inventory worth $52 000 will also be needed at the commencement of operations. The inventory cost will be recovered at the end of the project.
Showing all relevant cash flows, calculate the project�s NPV. No incomplete units can be sold, so round the unit sales to the nearest whole number. Indicate if you should start this business or not

Answer by solver91311(24713) (Show Source): You can put this solution on YOUR website!

This is a finance and accounting problem, not a math problem. Please ask for help with your finance and accounting homework on a more appropriate website. Meanwhile, I'm going to go the grocery store and see if I can buy a pound of 10d nails and a hammer.

John

My calculator said it, I believe it, that settles it

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