The Tuff Wheels was getting ready to start its development project for a new pro
ID: 467256 • Letter: T
Question
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.
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.
What is the net present value (discounted at 8%) of this project? Consider all costs and expected revenues.
What is the impact on NPV for the Kiddy Dozer if the actual sales are 50,000 per year? 70,000 per year?
What is the effect on NPV caused by changing the discount rate to 9%, 10%, or 11%?
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.
Explanation / Answer
Answer:
c. Effect of changes of expected rate of return on NPV at current level of 60,000 units:
Particulars 60,000 units 50,000 units 70,000 units Cash In flows (Sales in million) 12.90 10.75 15.05 PVAF@8% for 3 years 2.577 2.577 2.577 Present Value of Cash Inflows 33.2433 27.7027 38.7838 Present Value of Cash Outflows 1. Initial oulflow (1.35 + 0.20+ 0.40) 1.95 1.95 1.95 2. Present Value of Annual Cash outflows (2.50 + 100 = 102.50 per unit of sales x 2.577) 60,000 x 102.50 x 2.577 = 15.8485 million 13.2071 18.49 Total Present Value of COF 17.7985 15.1571 20.44 Net Present Value (PV of CIF - PV of COF) 15.4448 12.5456 18.3438Related Questions
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