Assuming a forecast bias of costs and cash flows

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RV Ventures has designed a new fuel efficient motor for their deluxe RV. Product development will continue for the next four years at an estimated cost of $250,000 annually, with the first payment to be made immediately. (Hence, 3 years left to pay for the annual cost.) The motor will be sold upon completion of the product development stage, generating annual cash flows of $200,000 for the next 10 years. Assuming a discount rate of 10%, what is the NPV of the investment?

b. Assuming a forecast bias of +10% on the costs and -8% on the cash flows, should the project be accepted?

Reference no: EM13767819

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