Hit or Miss Sports is introducing a new product this year. If its see-at-night soccer balls...

 

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Hit or Miss Sports is introducing a new product this year. If its see-at-night soccer balls are a hit, the firm expects to be able to sell 42,800 units a year at a price of $70 each. If the new product is a bust, only 20,700 units can be sold at a price of $45. The variable cost of each ball is $26 and fixed costs are zero. The cost of the manufacturing equipment is $5.86 million, and the project life is estimated at 10 years. The firm will use straight-line depreciation over the 10-year life of the project. The firm's tax rate is 35% and the discount rate is 14%. Now suppose that Hit or Miss Sports can expand production if the project is successful. By paying its workers overtime, it can increase production by 21,200 units; the variable cost of each ball will be higher, equal to $31 per unit. By how much does this option to expand production increase the NPV of the project? Assume that the firm decides whether to expand production after it learns the first-year sales results. (Round your answer to the nearest dollar. Use annuity factor value rounded to 4 decimal places in your calculations.) NPV increase $ Hit or Miss Sports is introducing a new product this year. If its see-at-night soccer balls are a hit, the firm expects to be able to sell 42,800 units a year at a price of $70 each. If the new product is a bust, only 20,700 units can be sold at a price of $45. The variable cost of each ball is $26 and fixed costs are zero. The cost of the manufacturing equipment is $5.86 million, and the project life is estimated at 10 years. The firm will use straight-line depreciation over the 10-year life of the project. The firm's tax rate is 35% and the discount rate is 14%. Now suppose that Hit or Miss Sports can expand production if the project is successful. By paying its workers overtime, it can increase production by 21,200 units; the variable cost of each ball will be higher, equal to $31 per unit. By how much does this option to expand production increase the NPV of the project? Assume that the firm decides whether to expand production after it learns the first-year sales results. (Round your answer to the nearest dollar. Use annuity factor value rounded to 4 decimal places in your calculations.) NPV increase $

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To calculate the increase in Net Present Value NPV resulting from the option to expand production fo... View the full answer