You are planning to manufacture a new cordless induction food processor. As this is new technology, it will cost you $4 million to develop and you plan to manufacture for three years (3Y straight line depreciation). Due to the rapidly changing nature of induction technology you do not wish to plan any more than three years ahead. Competition is fierce and you have estimated your annual expenses and sales etc as per the following with estimates for changes in good or bad scenarios. a. Market size b. Market share Unit Price 70,000 ± 7% 0.30 ± 10% $500 ± 5% c. d. Variable c.p.u. 28% e. Fixed costs f. Taxes Your cost of capital is 6%. $270 ± 12% $400,000 ± 13% Create a table of estimated and pessimistic values for each element. What is the three-year NPV of the project with all values pessimistic? Do you think that this should go ahead and why?
You are planning to manufacture a new cordless induction food processor. As this is new technology, it will cost you $4 million to develop and you plan to manufacture for three years (3Y straight line depreciation). Due to the rapidly changing nature of induction technology you do not wish to plan any more than three years ahead. Competition is fierce and you have estimated your annual expenses and sales etc as per the following with estimates for changes in good or bad scenarios. a. Market size b. Market share Unit Price 70,000 ± 7% 0.30 ± 10% $500 ± 5% c. d. Variable c.p.u. 28% e. Fixed costs f. Taxes Your cost of capital is 6%. $270 ± 12% $400,000 ± 13% Create a table of estimated and pessimistic values for each element. What is the three-year NPV of the project with all values pessimistic? Do you think that this should go ahead and why?
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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Transcribed Image Text:You are planning to manufacture a new cordless induction food processor. As this is
new technology, it will cost you $4 million to develop and you plan to manufacture for
three years (3Y straight line depreciation). Due to the rapidly changing nature of
induction technology you do not wish to plan any more than three years ahead.
Competition is fierce and you have estimated your annual expenses and sales etc as
per the following with estimates for changes in good or bad scenarios.
a. Market size
b. Market share
Unit Price
70,000 ± 7%
0.30 ± 10%
$500 ± 5%
c.
d. Variable c.p.u.
28%
e. Fixed costs
f. Taxes
Your cost of capital is 6%.
$270 ± 12%
$400,000 ± 13%
Create a table of estimated and pessimistic values for each element. What is the
three-year NPV of the project with all values pessimistic? Do you think that this
should go ahead and why?
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