You are a small business owner and are interested in starting a new product line for your business. Suppose that the initial investment to introduce the new product is $100,000.
You expect the new product line to generate cash flows of $12,000 one year from now. Each year thereafter, you expect the cash flows to increase at an annual rate of 3%.
If you estimate the project cost of capital for this new product line to be 14%, then what is the net present value of this to your business and should you go ahead with it?