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We are at the end of 2020. Double Reliable Electricity is a private company in Elbonia. It is considering a proposal to launch a new product, in addition to its existing product lines. This new product will be based on a recent discovery made in 2019 (the company holds a patent) which will give Double Reliable a two-year lead on its present competitors. The forecasts, established by the accounting department, are listed on the following.
You must :
(a) Test the accuracy, and consistency, of the future cash-flows. Which entries make sense ? Which do not ? Why or why not ?
(b) Tell what additional information you would need to construct a version of Table 1 that makes sense ?
(c) Construct such a table (call it Table 1bis) and compute the NPV (VAN). Make all assumptions that are necessary.
(d) List the items / assumptions / numbers that would change the NPV (VAN). Please choose the most important items (assumptions / numbers), in your opinion, and give an estimate of the various NPVs (VANs).
Attachment:- FIN_Question.zip
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