Question

A company is developing a new technology, and has reached the following milestones, with expenditures in as-spent dollars: TRL 1 complete: end of 2010, $0.65 M TRL 2 & 3 complete: end of 2011, $2.53 M TRL 4 complete: end of 2013, $6.71 M (expenditures equally distributed during TRL4) TRL 5 complete: end of 2014, $11.4 M TRL 6 complete: end of 2016, $16.8 M (expenditures equally distributed during TRL6) On average, inflation is 2%. In a meeting a the beginning of January 2020 with the head of Marketing and the Chief Technology Officer, the following projection is made for subsequent milestones: TRL 7 & 8 will be complete by end of 2021: $19.4 M (with expenditures equally distributed between 2020 and 2021) TRL 9 will be complete by end of 2022: $38.6 M Expected cash flows (revenue minus direct expenses, which includes any cost of financing) from sales are projected to be $25 M per year for each of the first 3 years of commercial production, and then $63 M per year for the next 4 years. The MARR for this product development scheme is 10%. a) Construct the cash flow series of as-spent and future sums. time b) Find the pre-tax, inflation-corrected NPV, IRR, and simple payback.

thankyou!

Answer 1

Project 7 &8

Year 2020 2021 2022 2023 2024    2025 2026 2027 2029

Out flow('000) (9,700) (9,894) (40,159)

Inflows 2,500   2,500 2,500 6,300 6,300 6,300   6,300

NPV (9,700) (8,994)   (31,123) 1,878 1,707 3,911 3,556 3,232 2,938

NPV = (32,592)

inflation of 2% considered in 2021 outflow

TRL 9