Question

The TitMar Motor Company is considering the production of a new personal transportation vehicle (PTV). The PTV would compete directly with the innovative new Segway. The PTV will utilize a three-wheel platform capable of carrying one rider for up to six hours per battery charge thanks to a new battery system developed by TitMar. TitMar’s PTV will sell for substantially less than the Segway but will offer equivalent features. The pro forma financials for the pro-posed PTV project, including the forecasts and assumptions that underlie them, are set out in Exhibit P3-7.1. Note that revenue is calculated as follows: price per unit * market

Share (%) * market size and units sold = revenues/ price per unit. The project offers an expected NPV of $ 9,526,209 and an IRR of 39.82%. Given TitMar’s stated hurdle rate of 18%, the project looks like a winner. Even though the project looks very good based on management’s estimates, it is risky and can turn from a positive NPV investment to a negative one with relatively modest changes in the key value drivers. Develop a spread-sheet model of the project valuation and answer the following questions:
a. If the firm’s market share turns out to be only 5%, what happens to the project’s NPV and IRR?
b. If the market share remains at 15% and the price of the PTV falls to $ 4,500, what is the resulting NPV?


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  • CreatedNovember 13, 2015
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