Question

(Related to Checkpoint 13.3) (Scenario analysis) Family Security is considering introducing tiny GPS trackers that can be inserted in the sole of a child's shoe, which would then allow for the tracking of that child if he or she was ever lost or abducted. The estimates, that might be off by 11 percent (either above or below), associated with this new product are shown here: EEB Since this is a new product line, you are not confident in your estimates and would like to know how well you will fare if your estimates on the items listed above are 11 percent higher or 11 percent lower than expected. Assume that this new product line will require an initial outlay of $1.01 million, with no working capital investment, and will last for 10 years, being depreciated down to zero using straight-line depreciation. In addition, the firm's required rate of return or cost of capital is 9.9 percent, and the firm's marginal tax rate is 34 percent. Calculate the project's NPV under the "best-case scenario" (that is, use the high estimates-unit price 11 percent above expected, variable costs 11 percent less than expected fixed costs 11 percent less than expected, and expected sales 11 percent more than expected). Calculate the project's NPV under the "worst-case scenario." The NPV for the best-case scenario will be R Round to the nearest dollar.) Data Table Unit price Variable costs:$71 Fixed costs Expected sales: 10,000 per year $120 $247,000 per year PrintDone

Answer 1

D74 O P Total cash PVIF@ Variable Contributi Deprecia Depreciat operating ion | Present value 61 Year units ale price coston per unit Fixed costs tion cash flows Investment flows PBT Tax@34% PAT 9.9% (1,010,000(1,010,000 1.000 S 63 1 11,100 $133.20 63.1970.01 $ 219,830 101,000 456,281 155,136 301,145 101,000 402,145 64 211,100 133.20 63.1970.01 219,830 101,000 456,281155,136 301,145 101,000 402,145 65 11,100 133.20 63.1970.01 219,830 101,000 456,281155,136 301,145 101,000 402,145 66 4 11,100 133.2063.1970.01$ 219,830 101,000 456,281155,136301,145 101,000 402,145 67 5 11,100 $ 133.20 63.1970.01 $219,830101,000 46,281155,136 301,145 101,000 402,145 68 611,100 S 133.20 63.19 70.01 $ 21 0402,145 69 7 11,100 $ 133.20 63.19 01219,830 101,000 456,281 155,136 301,145 101,000 402,14 70 8 11,100 $ 133.20 $ 63.19 70.01 $ 219,830101,000 456,281 155,136 301,145 101,000 402,145 402,145 0.91 365,919 332,957 302,963 275,672 250,839 228,243 207,682 188,974 171,951 156,461 0 402,145 0.753 $ 402,145 0.686 $ 402,145 0.624 S 402,145 0.568 S 402,145 0.516 S 402,145 0.470 S 402,145 0.428 4021450.389 S 19,830 101,000 456,281 155,136 301,145 101,00 71 9 11,100$ 133.20 63.1970.01 $ 219,830101,000 456,281 155,136 301,145 101,000 402,145 72 10 11,100 $133.20 $ 63.19s70.01 219,830 101,000456,281 155,136 301,145 101,000402,145 73 Best case NPV$1,471,661 74