Vinic Films has developed a new film that will increase the shelf-lives of frozen foods. Between equipment installation, labor, and overhead costs the initial development cost for this new product will be $4,000,000. It is expected that this new film will turn an initial profit of $725,000, increasing by 3.5% every year until until year 6. From years 7-12, the profit is expected to decrease by 30% every year as new products are introduced. In total, this product is expected to be sold for 12 years. Find the annual equivalent worth of this product if a 10% return on investment is expected.
Vinic Films has developed a new film that will increase the shelf-lives of frozen foods. Between equipment installation, labor, and overhead costs the initial development cost for this new product will be $4,000,000. It is expected that this new film will turn an initial profit of $725,000, increasing by 3.5% every year until until year 6. From years 7-12, the profit is expected to decrease by 30% every year as new products are introduced. In total, this product is expected to be sold for 12 years. Find the annual equivalent worth of this product if a 10% return on investment is expected.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Vinic Films has developed a new film that will increase the shelf-lives of frozen foods.
Between equipment installation, labor, and overhead costs the initial development cost for
this new product will be $4,000,000. It is expected that this new film will turn an initial profit
of $725,000, increasing by 3.5% every year until until year 6. From years 7-12, the profit is
expected to decrease by 30% every year as new products are introduced. In total, this
product is expected to be sold for 12 years. Find the annual equivalent worth of this product
if a 10% return on investment is expected.
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