$ Initial Investment Hurdle rate Contribution margin (30,000,000) 20% Population Family Size Total Households Brazil China 182,000,000 1,286,000,000 4.01 3.7 India 1,049,000,000 4.91 25% Market Penetration Households who already own a washer 89 4.54 20% 20% 20 Forecast 2-yr penetration in Forecast 2-yr penetration in units First-year Sales in Units First-year profits Second-year profits Third-year profits Fourth-year profits Fifth-year profits Net Present Value HINT - To answer the question, follow these steps: . First, calculate the profit Whirlpool makes by selling one machine. This is called the profit margin or contribution. Recall that Whirlpool is a manufacturer of washing machines and sells its products through retailers. The sales price to consumers is the retail price. You need to work backward from the retail price to determine the wholesale price, i.e., the price at which Whirlpool sells to the retailers. Whirlpool's contribution margin is a percentage (given in the case) of the wholesale price. (The profit margin is $4.) Next, calculate a sales forecast for years 1 through 5 for Brazil. To do so, first calculate how many households already have an automatic washing machine in Brazil. This is the current market penetration. These household will not buy the Ideale because they already have an automatic washing machine but the sales forecasts are given as percentages of the current marketpenetration. Once you have 1 the sales forecast for the first two years, the case tells you that the forecast for Year 1 1, which is equal to the forecast for Year 2, is half of that. From Year 3 and onward, 1 sales grow by 10% annually. Repeat this process for India and China. 18 . The sales forecast must be converted into a profit forecast for year 1 through 5 using 19 the profit margin. These are the future cashflows in dollars. 20 Finally, you can calculate the NPV but calculating the discounted cash flows for years 21 1 through 5 and then subtracting the initial development cost for the ideale product, 22 which, we are told, is $30 million. The net present value is calculated for all three 23 countries combined since the same product was developed for all three markets. 24 25 Video tutorials on Net Present Value (NPV) and Internal Rate of Return (IRRI: 26