(Related to Checkpoint 13.3) (Scenario analysis) Family Security is considering introducing tiny GPS trackers that can be inserted in the sole of a child's shoe, which would then allow for the tracking of that child if he or she was ever lost or abducted. The estimates, that might be off by 10 percent (either above or below), associated with this new product are shown here:. Since this is a new product line, you are not confident in your estimates and would like to know how well you will fare if your estimates on the items listed above are 10 percent higher or 10 percent lower than expected. Assume that this new product line will require an initial outlay of $1.00 million, with no working capital investment, and will last for 10 years, being depreciated down to zero using straight-line depreciation. In addition, the firm's required rate of return or cost of capital is 10.0 percent, and the firm's marginal tax rate is 34 percent. Calculate the project's NPV under the "best-case scenario" (that is, use the high estimates-unit price 10 percent above expected, variable costs 10 percent less than expected, fixed costs 10 percent less than expected, and
(Related to Checkpoint 13.3) (Scenario analysis) Family Security is considering introducing tiny GPS trackers that can be inserted in the sole of a child's shoe, which would then allow for the tracking of that child if he or she was ever lost or abducted. The estimates, that might be off by 10 percent (either above or below), associated with this new product are shown here:. Since this is a new product line, you are not confident in your estimates and would like to know how well you will fare if your estimates on the items listed above are 10 percent higher or 10 percent lower than expected. Assume that this new product line will require an initial outlay of $1.00 million, with no working capital investment, and will last for 10 years, being depreciated down to zero using straight-line depreciation. In addition, the firm's required rate of return or cost of capital is 10.0 percent, and the firm's marginal tax rate is 34 percent. Calculate the project's NPV under the "best-case scenario" (that is, use the high estimates-unit price 10 percent above expected, variable costs 10 percent less than expected, fixed costs 10 percent less than expected, and
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Module 5 Question 7 Redo:
Transcribed Image Text:(Related to Checkpoint 13.3) (Scenario analysis) Family Security is considering introducing tiny GPS trackers that can be inserted in the sole
of a child's shoe, which would then allow for the tracking of that child if he or she was ever lost or abducted. The estimates, that might be off by 10
percent (either above or below), associated with this new product are shown here:. Since this is a new product line, you are not confident in
your estimates and would like to know how well you will fare if your estimates on the items listed above are 10 percent higher or 10 percent lower
than expected. Assume that this new product line will require an initial outlay of $1.00 million, with no working capital investment, and will last for
10 years, being depreciated down to zero using straight-line depreciation. In addition, the firm's required rate of return or cost of capital is 10.0
percent, and the firm's marginal tax rate is 34 percent. Calculate the project's NPV under the "best-case scenario" (that is, use the high
estimates-unit price 10 percent above expected, variable costs 10 percent less than expected, fixed costs 10 percent less than expected, and
Transcribed Image Text:Unit price:
Variable costs:
Fixed costs:
Expected sales:
$250,000 per year
10,000 per year
order to copy its contents into a onroadshoot!
$125
$75
Expert Solution
Step 1
NPV of Project
The amount that a project or investment will make or lose in terms of today's dollars is indicated by its net present value. Due to the impact of variables like inflation and lost compound interest, future cash flow does not accurately reflect the current cash flow of a project, hence NPV is adjusted accordingly.
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Question content area top
Part 1
(Related to Checkpoint 13.3) (Scenario analysis) Family Security is considering introducing tiny GPS trackers that can be inserted in the sole of a child's shoe, which would then allow for the tracking of that child if he or she was ever lost or abducted. The estimates, that might be off by
Since this is a new product line, you are not confident in your estimates and would like to know how well you will fare if your estimates on the items listed above are
depreciated down to zero using straight-line depreciation. In addition, the firm's required rate of return or cost of capital is
NPV under the "best-case scenario" (that is, use the high
10
percent (either above or below), associated with this new product are shown here:
LOADING...
.10
percent higher or
10
percent lower than expected. Assume that this new product line will require an initial outlay of
$1.00
million, with no working capital investment, and will last for
10
years, being 10.0
percent, and the firm's marginal tax rate is
34
percent. Calculate the project's estimates—unit
price
10
percent above expected, variable costs
10
percent less than expected, fixed costs
10
percent less than expected, and expected sales
10
percent more than expected). Calculate the project's NPV under the "worst-case scenario."Question content area bottom
Part 1
The NPV for the best-case scenario will be $1,419,1161,419,116. (Round to the nearest dollar.)
The NPV for the worst-case scenario will be $ (What)?
Solution
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