643 Words3 Pages

Problem 3-10 The Tuff Wheels was getting ready to start its development project for a new product to be added to their small motorized vehicle line for children. The new product is called the Kiddy Dozer. It will look like a miniature bulldozer, complete with caterpillar tracks and a blade. Tuff Wheels has forecasted the demand and the cost to develop and produce the new Kiddy Dozer. The table below contains the relevant information for this project. |
| | Development cost | $ | 1,050,000 | | Estimated development time | | 9 | months | Pilot testing | $ | 200,000 | | Ramp-up cost | $ | 400,000 | | Marketing and support cost | $ | 150,000 | per year | Sales and production volume | | 60,000 | per year | Unit production cost | $ | 100 | | Unit price | $ | 185 | | Interest rate | | 8 | % | |
Tuff Wheels also has provided the project plan shown below. As can be seen in the project plan, the company thinks that the product life will be three years until a new product must be created. |
a. | What is the net present value (discounted at 8%) of this project? Consider all costs and expected revenues. (Enter your answer in thousands of dollars. Round your answer to the nearest thousand.) |
Net present value | $ |
b. | What is the impact on NPV for the Kiddy Dozer if the actual sales are 50,000 per year? $70,000 per year? (Enter your answer in thousands of dollars. Round your answer to the nearest thousand.) |
| | NPV50,000 | $ | NPV70,000 | $ | |
c. | What is the effect on NPV caused by changing the discount rate to 9%, 10%, or 11%? (Enter your answer in thousands of dollars. Round your answer to the nearest thousand.) |
| | NPV9% | $ | NPV10% | $ | NPV11% | $ | | check my workreferencesebook &

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