How do you do this? The Tuff Wheels was getting ready to start its development project for a new product to be added toits small motorized vehicle line for children. The new product is called the Kiddy Dozer. It will look likea miniature bulldozer, complete with caterpillar tracks and a blade. Tuff Wheels has forecasted thedemand and the cost to develop and produce the new Kiddy Dozer. The following table contains therelevant information for this project.Development costEstimated development timePilot testingRamp-up costMarketing and support costSales and production volumeUnit production costUnit priceInterest rate$1,250,0009 months$ 200,000$ 400,000$ 150,000 per year60,000 per year$1002$2058 %Tuff Wheels also has provided the project plan shown as follows, As can be seen in the project pilamthe company thinks that the product life will be three years until a new product must be created.PROJECT SCHEDULEKIDDY DOZERYEAR 1YEAR 2YEAR 3YEAR 4DevelopmentPilot TestingRamp-upMarketing and SupportProduction and SalesAssume 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 expectedrevenues. (Enter your answer in thousands of dollars. Perform all calculations using Excel. Donot round any intermediate calculations. Round your answer to the nearest thousand.)Net present value 4year? (Enter your answer in thousands of dollars. Perform all calculations using Excel. Do notround any intermediate calculations. Round your answer to the nearest thousand.)NPV 50,000NPV 70,000c. Based on the original sales level of 60,000, what is the effect on NPV caused by changing thediscount rate to 9%, 10%, or 11%? (Enter your answer in thousands of dollars. Perform allcalculations using Excel. Do not round any intermediate calculations. Round your answer tothe nearest thousand.)NPV 9%NPV 10%NPV 11%rev: 09_11_2020_QC_CS-227775ReferencesWorksheetDifficulty: 3 HardLearning Objective:03-05 Illustrate howproduct developmentis measured in aProblem 3-10(Algo)company.

Net present value is the excess of present value of cash inflows over cash outflows

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.)

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.)

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 17P: The Yoran Yacht Company (YYC), a prominent sailboat builder in Newport, may design a new 30-foot...

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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 $ 1,200,000 Estimated development time 9 months Pilot testing $ 200,000 Ramp-up cost $ 400,000 Marketing and support cost $ 150,000 per year Sales and production volume 60,000 per year Unit production cost $ 100 Unit price $ 200 Interest rate 8 % Tuff Wheels also has provided the project plan shown as follows. 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. Assume all cash flows occur at the end of each period. a. What is the net present value…
The Yoran Yacht Company (YYC), a prominent sailboat builder in Newport, may design a new 30-foot sailboat based on the winged keels first introduced on the 12-meter yachts that raced for the Americas Cup. First, YYC would have to invest 10,000 at t = 0 for the design and model tank testing of the new boat. YYCs managers believe there is a 60% probability that this phase will be successful and the project will continue. If Stage 1 is not successful, the project will be abandoned with zero salvage value. The next stage, if undertaken, would consist of making the molds and producing two prototype boats. This would cost 500,000 at t = 1. If the boats test well, YYC would go into production. If they do not, the molds and prototypes could be sold for 100,000. The managers estimate the probability is 80% that the boats will pass testing and that Stage 3 will be undertaken. Stage 3 consists of converting an unused production line to produce the new design. This would cost 1 million at t = 2. If the economy is strong at this point, the net value of sales would be 3 million; if the economy is weak, the net value would be 1.5 million. Both net values occur at t = 3, and each state of the economy has a probability of 0.5. YYCs corporate cost of capital is 12%. a. Assume this project has average risk. Construct a decision tree and determine the projects expected NPV. b. Find the projects standard deviation of NPV and coefficient of variation of NPV. If YYCs average project had a CV of between 1.0 and 2.0, would this project be of high, low, or average stand-alone risk?
The Yoran Yacht Company (YYC), a prominent sailboat builder in Newport, may design a new 30-foot sailboat based on the "winged" keels first introduced on the 12-meter yachts that raced for the America's Cup. First, YYC would have to invest $12,000 at t = 0 for the design and model tank testing of the new boat. YYC's managers believe there is a 60% probability that this phase will be successful and the project will continue. If Stage 1 is not successful, the project will be abandoned with zero salvage value. The next stage, if undertaken, would consist of making the molds and producing two prototype boats. This would cost $500,000 at t = 1. If the boats test well, YYC would go into production. If they do not, the molds and prototypes could be sold for $100,000. The managers estimate that the probability is 80% that the boats will pass testing and that Stage 3 will be undertaken. Stage 3 consists of converting an unused production line to produce the new design. This would cost $1…
Bolton Fireworks, Inc. is considering researching and developing a new high-tech fireworks launcher to sell along side its collection of professional fireworks. If they go forward, a marketing analysis will be implemented immediately at a cost of $50,000 and take a year to complete. If its results are positive (80% probability) then Bolton will spend $100,000 to build a prototype launcher. If the marketing results are poor (20% probability), then it will abandon the project. It will take a year to build and evaluate the prototype launcher. If the prototype works as hoped (75% probability) then they will spend $500,000 on purchasing and installing manufacturing equipment. If the prototype doesn't work well (25% probability) then, of course, the prototype is trash and they will discard it and abandon the project. Once the manufacturing equipment is installed (it will take a year), then cash flows will either be $300,000 per year for 5 years (60% probability) or $50,000 per year for 5…
In a bio-based material recycling company, the operation managers are considering a twin-screw extruder with a price of 12,000 OMR and another 2,000 OMR will be spent for shipping and installation of the extruder. The estimated net income generated from this machine is 3,500 OMR per year. The extruder will be used for 5 years, and then it will be sold for an estimated market value of 2,500 OMR. The extruder MARCS property class is 5 years. If the effective income tax rate (t) is 40% and the after-tax MARR is 10%. (a) What is the after-tax IRR for this project? (use trial and error procedure and GDS) (b) Should this extruder be purchased by the company?
Mercedes is considering upgrading their existing manufacturing line with state-of-the-art robotics. They will start with a pilot project at a single plant, and will assess profitability and potential scalability following the pilot. Your branch has been chosen as the pilot project test site, and you (the manager of the plant) need to assess your budget before launch the pilot. The installed cost of the new machinery is $200,000 and is expected to last for 10 years. The salvage value is expected to be $2.5×10,000 in today's dollars. Revenue is expected to increase by $40,000 while operating costs are expected to increase $5000 (both actual). Determine the present worth of the project, assuming an (actual) MARR of 12% , a CCA rate of 12% and a corporate tax rate of 25%
Boyd Enterprises is considering developing a new baseball souvenir for use in the new baseball stadium. It is very big, very bright, and very noisy! Boyd will immediately spend $50,000 on a design and test marketing study that will take a year to complete. If the fan focus groups hate it (30% probability) Boyd will abandon the project and receive nothing. If they love it (70% probability) then in Year 1 Boyd will invest $30,000 in new manufacturing equipment. Sales will begin in Year 2. If actual fans in the stadium love it (80% probability), Boyd will receive cash flows of $40,000 per year for 5 years starting in Year 2. If fans don't like them (20% probability) Boyd will only receive cash flows of $2,000 per year for 5 years. What is the expected NPV of the project? Boyd's WACC is 10%. Hint: Draw a decision tree. $9,068.22 $9,975.04 $10,972.55 $12,069.80 $13,276.78
FAE Technologies is deciding whether it should begin production of a new toy robot. It has manufactured children’s toys before but nothing as advanced as its latest robot so historical data is at a minimum. The company believes that they can secure the materials for manufacture for between $65-85 per unit and labor costs would be between $15-25 per unit. Management’s expectations are that materials will cost $70 per unit and labor $25 per unit and that 800 units will be sold monthly. Should FAE decide to manufacture the robots in-house, maintenance of the factory machine would cost $15,000 per month. However, management has found that another alternative is for the company to outsource the labor for a flat rate of $35 per unit. The company expects to sell between 750-1000 units per month initially at a price of $149. Provide recommendations for FAE technologies that will maximize profit. Also include base, worst, and best case scenario calculations and provide a scenario summary. Be…
Wilderness Products, Inc., has designed a self-inflating sleeping pad for use by backpackers and campers. The following information is available about the new product: An investment of $1,650,000 will be necessary to carry inventories and accounts receivable and to purchase some new equipment needed in the manufacturing process. The company’s required rate of return is 16% on all investments. A standard cost card has been prepared for the sleeping pad, as shown below: StandardQuantity or Hours StandardPrice or Rate StandardCost Direct materials 9 yards $ 3.30 per yard $ 29.70 Direct labor 5.4 hours $ 9.00 per hour 48.60 Manufacturing overhead (20% variable) 5.4 hours $ 13.00 per hour 70.20 Total standard cost per pad $ 148.50 The only variable selling and administrative expense will be a sales commission of $9 per pad. The fixed selling and administrative expenses will be $4,812,000 per year. Because the company manufactures many…
AMT, Inc., is considering the purchase of a digital camera for maintenance of design specifications by feeding digital pictures directly into an engineering workstation where computer-aided design files can be superimposed over the digital pictures. Differences between the two images can be noted, and corrections, as appropriate, can then be made by design engineers. Solve, a. You have been asked by management to determine the PW of the EVA of this equipment, assuming the following estimates: capital investment = $345,000; market value at end of year six = $120,000; annual revenues = $120,000; annual expenses = $8,000; equipment life = 6 years; effective income tax rate = 50%; and after-tax MARR = 10% per year. MACRS depreciation will be used with a five-year recovery period. b. Compute the PW of the equipment’s ATCFs. Is youranswer in Part (a) the same as your answer in Part (b)?
Hudson Corporation is considering three options for managing its data warehouse: continuing with its own staff, hiring an outside vendor to do the managing, or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data warehouse? What is the expected annual cost associated with that recommendation? Construct a risk profile for the optimal decision in part (a). What is the probability of the cost exceeding $700,000?
John Smith is looking to open an ice-cream parlor place in the neighborhood where he resides. He has been thinking about this project for a while. He has completed the technical, legal, and economic feasibility studies in order to decide properly. The economic study presented him with the following financial forecasts: The project will last 5 years. The price of an average creamery ice-cream cone should be $6 per unit. Under the current conditions, it is not expected that the price will change over the life of the project. The store is expected to sell 20,000 units the first year, with an annual growth of 5% in the units sold. The main variable costs are waffle cones, ice-cream, toppings, whipped cream, chocolate fudge, disposable cups, napkins and plastic spoons. The economic study has also found that the variable costs should be 40% of the sales revenues. The main fixed costs are rent ($10,000/year), utilities ($5,000/year), and gross salaries for two part-time employees…