Question

The Tuff Wheels was getting ready to start its development project for a new product to be added to their 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 table below contains the relevant information for this project. Development cost Estimated development time Pilot testing Ramp-up cost Marketing and support cost Sales and production volume Unit production cost Unit price Interest rate $1,350,000 9 months 200,000 400,000 150,000 per year 60,000 per year 100 215 Tuff Wheels also has provided the project plan shown below. 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 PROJECT SCHEDULE KIDDY DOZER YEAR EAR I EAR EAR Q1 2 Q Q1 02 04 2 Q Pilot Testing Ramp-up Marketing and Support Production and Sales Assume all cash flows occur at the end of each period

Answer 1

The answer has been presented in the supporting sheets. All the NPV has been calculated with detailed explanation. Refer to sheet for further solution and all the parts has been solved.