Perot Corporation is developing a new CPU chip based on a new type of technology. Its new chip, the Patay chip, will take two yearsto develop. However, because other chip manufacturers will be able to copy the technology, it will have a market life of two years afterit is introduced. Perot expects to be able to price the chip higher in the first year, and it anticipates a significant production costreduction after the first year. The relevant information for developing and selling the Patay2 is given as follows:
Assume all cash flows occur at the end of each period.
What are the yearly cash flows and their present value (discounted at 10 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 intermediatecalculations. Negative value should be indicated by a minus sign.
Answer is complete but not entirely correct.
Net present value $ 8,125
Perot’s engineers have determined that spending $10 million more on development will allow them to add even more advancedfeatures. Having a more advanced chip will allow them to price the chip $50 higher in both years ( $870 for year 1 and $700 for year2). What is the NPV of the project if this option is implemented?
Note: Enter your answer in thousands of dollars. Perform all calculations using Excel. Do not round any intermediatecalculations. Negative value should be indicated by a minus sign.
Answer is complete but not entirely correct.
Net present value17,175
If sales are only 256,000 the first year and 128,000 the second year, what would the NPV of the project be? Assume thedevelopment costs and sales price are as originally estimated?
Note: Enter your answer in thousands of dollars. Perform all calculations using Excel. Do not round any intermediatecalculations. Negative value should be indicated by a minus sign.
Answer is complete but not entirely correct.
Can you please use Excel to answer these?
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