Assignment 1 Part 2 - Economic Analysis of Product Development Projects (30 pts) VidMark, a manufacturer of cellphones, is developing a new model (VidPhone X70) that will be released on the market when development is complete. This phone will be revolutionary in that it will allow the user to place group video phone calls VidMark is concerned about the development cost and time. They are also worried about market estimates of the sales of the new VidPhone X70. The cost estimates and forecast are given in the table below: Development Cost $ 2,000,000 Development Time 2 years Ramp-up Cost $ 750,000 Marketing and Support Cost $ 500,000/year Unit Production Cost $ 75 Unit Price $ 135 Sales and Production Volume Year 3 40,000 Year 4 50.000 Year 5 40,000 Use the data above to develop a base case analysis. The project schedule is shown below with timings of the cash flows. Year 3 1 2 4 5 VidPhone X70 Schedule Development Ramp-up Marketing & support Production and sales There are several questions that need to be answered for VidMark on this project: a. What are the yearly cash flows and their present value (PV, discounted at 12%) of this project? What is the net present value (NPV)? b. What is the impact on VidMark if their sales estimates are off by 20%? C. What is the impact on VidMark if their unit production cost is $85? Year 3 1 5 2 4 Question a ($ values in thousands) Development cost Ramp-up cost Marketing & support cost Production volume Unit production cost Production cost Sales volume Unit price Sales revenue Period cash flow PV Year 1. r= 12% Project NPV Year 3 2 1 4 5 Question. b ($ values in thousands) Development cost Ramp-up cost Marketing & support cost Production volume Unit production cost Production cost Sales volume Unit price Sales revenue Period cash flow PV Year 1, r= 12% Project NPV Year 3 1 2 4 5 Question. c ($ values in thousands) Development cost Ramp-up cost Marketing & support cost Production volume Unit production cost Production cost Sales volume Unit price Sales revenue Period cash flow PV Year 1, r = 12% Project NPV