SavedProblem 3-10 (Algo)Tuff Wheels has forecast the demand and the cost project for a new product…

SavedProblem 3-10 (Algo)
Tuff Wheels has forecast the demand and the cost 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 minlature 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.
Item
Value
Development cost
$850,000
Estimated development time
Pilot testing
$200,000
Ramp-up cost
$400,000
Marketing and support cost
Sales and production volume
$150,000 per year
Unit production cost
$100
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 are the yearly cash flows and their present value (discounted at 8 percent) of this project? What is the net present value?
Note: 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
b. What is the impact on NPV for the Kiddy Dozer If the actual sales are 50,000 per year? 70,000 per year?
Note: Enter your answer in thousands of dollars. Perform all calculations using Excel. Do not round any intermedlate calculations. Round your answer to the nearest thousand.
Scenario
Value
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%?
Note: 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.
Discount rate
NPV
NPV 9%
NPV 10%
NPV 11%