L03-5 9. Measures of product development success can be organized in to what thr

Question

L03-5 9. Measures of product development success can be organized in to what three categories? 10. Tuff Wheels was getting ready to start its development project for a new product to be added to its 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 demsand and the cost to develop and pro- duce the new Kiddy Dozer. The table below contains the reievant information for this project. Development Cost Estimated Development Time Pilot Testing Ramp-up Cost Marketing and Support Cost Sales and Production Volume Unit Production Cost Unit Price Interest Rate $1,000,000 9 months $200,000 $400,000 $150,000 per year 60,000 per year $100 $170 golo

Explanation / Answer

Yr1 Yr 2 Yr 3 Development cost -1600000 Pilot Testing -200000 Ramp-Up Cost -400000 Marketing and Support cost -150000 -150000 -150000 Sales - 60000*170 10200000 10200000 10200000 Production cost = 60000*100 -6000000 -6000000 -6000000 Free cash flows 1850000 4050000 4050000 Discounting factor @ 8% 0.925926 0.857339 0.793832 Present value of cash flow 1712963 3472222 3215021 Net present value 8400206 $8400206 If Sale units are 50,000 Yr1 Yr 2 Yr 3 Development cost -1600000 Pilot Testing -200000 Ramp-Up Cost -400000 Marketing and Support cost -150000 -150000 -150000 Sales - 50000*170 8500000 8500000 8500000 Production cost = 50000*100 -5000000 -5000000 -5000000 Free cash flows 1150000 3350000 3350000 Discounting factor @ 8% 0.925926 0.857339 0.793832 Present value of cash flow 1064815 2872085 2659338 Net present value 6596238 $6596238 If Sale units are 70,000 Yr1 Yr 2 Yr 3 Development cost -1600000 Pilot Testing -200000 Ramp-Up Cost -400000 Marketing and Support cost -150000 -150000 -150000 Sales - 70000*170 11900000 11900000 11900000 Production cost = 70000*100 -7000000 -7000000 -7000000 Free cash flows 2550000 4750000 4750000 Discounting factor @ 8% 0.925926 0.857339 0.793832 Present value of cash flow 2361111 4072359 3770703 Net present value 10204174 $10204174 If discount rate is 9% Yr1 Yr 2 Yr 3 Development cost -1600000 Pilot Testing -200000 Ramp-Up Cost -400000 Marketing and Support cost -150000 -150000 -150000 Sales - 60000*170 10200000 10200000 10200000 Production cost = 60000*100 -6000000 -6000000 -6000000 Free cash flows 1850000 4050000 4050000 Discounting factor @ 9% 0.917431 0.84168 0.772183 Present value of cash flow 1697248 3408804 3127343 Net present value 8233395 $8233395 If discount rate is 10% Yr1 Yr 2 Yr 3 Development cost -1600000 Pilot Testing -200000 Ramp-Up Cost -400000 Marketing and Support cost -150000 -150000 -150000 Sales - 60000*170 10200000 10200000 10200000 Production cost = 60000*100 -6000000 -6000000 -6000000 Free cash flows 1850000 4050000 4050000 Discounting factor @ 10% 0.909091 0.826446 0.751315 Present value of cash flow 1681818 3347107 3042825 Net present value 8071751 $8071751 If discount rate is 11% Yr1 Yr 2 Yr 3 Development cost -1600000 Pilot Testing -200000 Ramp-Up Cost -400000 Marketing and Support cost -150000 -150000 -150000 Sales - 60000*170 10200000 10200000 10200000 Production cost = 60000*100 -6000000 -6000000 -6000000 Free cash flows 1850000 4050000 4050000 Discounting factor @ 11% 0.900901 0.811622 0.731191 Present value of cash flow 1666667 3287071 2961325 Net present value 7915063 $7915063 If discount rates increases the NPV reduces

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