Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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The 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 demand and the cost to develop and produce the new Kiddy Dozer. The following table contains the relevant 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 $1,250,000 9 months $ 200,000 $ 400,000 $ 150,000 per year 60,000 per year $ 100 2$ 205 8 % Tuff Wheels also has provided the project plan shown as follows, As can be seen in the project pilam the company thinks that the product life will be three years until a new product must be created. PROJECT SCHEDULE KIDDY DOZER YEAR 1 YEAR 2 YEAR 3 YEAR 4 Development Pilot Testing Ramp-up Marketing and Support Production and Sales Assume all cash flows occur at the end of each period. 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. Perform all calculations using Excel. Do not round any intermediate calculations. Round your answer to the nearest thousand.) Net present value
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Transcribed Image Text:The 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 demand and the cost to develop and produce the new Kiddy Dozer. The following table contains the relevant 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 $1,250,000 9 months $ 200,000 $ 400,000 $ 150,000 per year 60,000 per year $ 100 2$ 205 8 % Tuff Wheels also has provided the project plan shown as follows, As can be seen in the project pilam the company thinks that the product life will be three years until a new product must be created. PROJECT SCHEDULE KIDDY DOZER YEAR 1 YEAR 2 YEAR 3 YEAR 4 Development Pilot Testing Ramp-up Marketing and Support Production and Sales Assume all cash flows occur at the end of each period. 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. Perform all calculations using Excel. Do not round any intermediate calculations. Round your answer to the nearest thousand.) Net present value
4 year? (Enter your answer in thousands of dollars. Perform all calculations using Excel. Do not round any intermediate calculations. Round your answer to the nearest thousand.) NPV 50,000 NPV 70,000 c. Based on the original sales level of 60,000, what is the effect on NPV caused by changing the discount rate to 9%, 10%, or 11%? (Enter your answer in thousands of dollars. Perform all calculations using Excel. Do not round any intermediate calculations. Round your answer to the nearest thousand.) NPV 9% NPV 10% NPV 11% rev: 09_11_2020_QC_CS-227775 References Worksheet Difficulty: 3 Hard Learning Objective: 03-05 Illustrate how product development is measured in a Problem 3-10 (Algo) company.
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Transcribed Image Text:4 year? (Enter your answer in thousands of dollars. Perform all calculations using Excel. Do not round any intermediate calculations. Round your answer to the nearest thousand.) NPV 50,000 NPV 70,000 c. Based on the original sales level of 60,000, what is the effect on NPV caused by changing the discount rate to 9%, 10%, or 11%? (Enter your answer in thousands of dollars. Perform all calculations using Excel. Do not round any intermediate calculations. Round your answer to the nearest thousand.) NPV 9% NPV 10% NPV 11% rev: 09_11_2020_QC_CS-227775 References Worksheet Difficulty: 3 Hard Learning Objective: 03-05 Illustrate how product development is measured in a Problem 3-10 (Algo) company.
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