Ask Question, Ask an Expert


Ask Financial Accounting Expert

Problem: The Whiskey Company is calculating a proposal to distil and manufacture diet scotch. Before investing in full scale production of new product, diet scotch will first be test marketed for 2 years in Maine at an immediate upfront cost of $750000. Test marketing the product is not anticipated to generate any profits but will reveal the strength of consumer preferences for diet scotch. There is only 40% chance which demand will be satisfactory, in which case Whiskey Co will spend $10 million to launch national distribution of the diet scotch, which would generate anticipated yearly profits of $1,500,000 in perpetuity. When demand is not satisfactory, the distillation and production of diet scotch will be terminated instantaneously. Once consumer preferences are known, the risk of the product cash flows will be close to the average risk level for Whiskey Co's existing products,

problem1. Which have the required return of 10%? However, Whiskey Co's CFO is convinced that the initial test market phase is much riskier than normal.

problem2. Supposing the Whiskey Co's demand a return of 35% percent on test marketing phase of new products,

problem3. Find out the NPV of decision to test market diet scotch?

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M94062

Have any Question? 

Related Questions in Financial Accounting

As of december 31 2014 post company had total cash of

As of December 31, 2014, Post Company had total cash of $153,000, notes payable of $85,300, and common stock of $52,100. During 2015, Post earned $33,000 of cash revenue, paid $18,500 for cash expenses, and paid a $2,700 ...

Buddy printers is a manufacturer of printers aimed at small

Buddy Printers is a manufacturer of printers aimed at small businesses in the US. The typical model sells for $500 or less and comes with the initial toner cartridge. The average owner of these printers would replace the ...

Imagine yourself as a member in a business partnership your

Imagine yourself as a member in a business partnership; your role is to run the daily operations of the business. The partnership offers you the choice of the following two types of compensation; guaranteed payments or d ...

The average production cost per good is estimated at 5 15x

The average production cost per good is estimated at $5 + $15/(x + 1). The firm can currently sell 10 units at $20 per unit. (a) What is the current total profit of the firm? (b) How much should the firm value the opport ...

Alternative allocation bases service lo 12-6 packages-2-go

Alternative Allocation Bases: Service (LO 12-6) Packages-2-Go has two divisions, air express and ground service, that share the common costs of the company’s communications network, which are $4,970,000 a year. You have ...

Maquoketa valley resort opened for business on june 1 with

Maquoketa Valley Resort opened for business on June 1 with eight air-conditioned units. Its trial balance before adjustment on August 31 is presented here.. MAQUOKETA VALLEY RESORT  Trial Balance  August 31, 2012 Debit C ...

A company sells computers for 1600 each each computer has a

A company sells computers for $1,600 each. Each computer has a two-year warranty that covers replacement of defective parts. It is estimated that 2% of all computers sold will be returned under the warranty with an avera ...

Kasper inc sponsors a defined-benefit pension plan the

Kasper, Inc. sponsors a defined-benefit pension plan. The following data relates to the operation of the plan for the year 2013. Service cost $210,000 Contributions to the plan $190,000 Actual return on plan assets $165, ...

Xinhong company is considering replacing one of its

Xinhong Company is considering replacing one of its manufacturing machines. The machine has a book value of $38,000 and a remaining useful life of 5 years, at which time its salvage value will be zero. It has a current m ...

In 2016 dominique and felix are married and file a joint

In 2016, Dominique and Felix are married and file a joint tax return. Their AGI is $314,050, and they claim three exemptions. The personal exemption amount for 2016 is $4,050 and the phase out threshold for married filin ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate