Determine external rate of return using the roic approach

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Five years ago, a company made a $500,000 investment in a new high-temperature material. The product did poorly after only 1 year on the market. However, with a new name and advertising campaign 4 years later it did much better. New development funds have been expended this year (year 5) at a cost of $1.5 million. Determine the external rate of return using the ROIC approach and an investment rate of 15% per year. The i * rate is 44.1% per year.

Year    Cash Flow, $

0          -500,000

1          400,000

2          0

3          0

4          2,000,000

5          -1,500,000

Reference no: EM13881848

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