Your company is looking at introducing a new product into its product line. Your company expects that this new product would be offered into perpetuity. It is expected to decrease the firm's FCF8 immediately by $36 million and $22 million next year. Starting in year 2, the firm's FCF8 will increase by $10 million. These incremental FCF8 will then decrease at a rate of 2% into perpetuity (i.e. year 3's incremental FCF will be 10M*(1+(-0.02)) = 9.8M, and so on). If the firm's discount rate is 12%, is this a good investment? 2.
Your company is looking at introducing a new product into its product line. Your company expects that this new product would be offered into perpetuity. It is expected to decrease the firm's FCF8 immediately by $36 million and $22 million next year. Starting in year 2, the firm's FCF8 will increase by $10 million. These incremental FCF8 will then decrease at a rate of 2% into perpetuity (i.e. year 3's incremental FCF will be 10M*(1+(-0.02)) = 9.8M, and so on). If the firm's discount rate is 12%, is this a good investment? 2.
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
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Transcribed Image Text:Your company is looking at introducing a new product into its product line. Your
company expects that this new product would be offered into perpetuity. It is expected to
decrease the firm's FCF8 immediately by $36 million and $22 million next year. Starting
in year 2, the firm's FCF8 will increase by $10 million. These incremental FCF8 will
then decrease at a rate of 2% into perpetuity (i.e. year 3's incremental FCF will be
10M*(1+(-0.02)) = 9.8M, and so on). If the firm's discount rate is 12%, is this a good
investment?
2.
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