PATAY$2$ CHIP PRODUCT ESTIMATES

Development cost $$24,000,000$

Pilot testing $$6,000,000$

Debug $$3,600,000$

Ramp$-$up cost $$3,600,000$

Advance marketing $$6,000,000$

Marketing and support cost $$1,200,000$ per year

Unit production cost year $1$ $$655\mathrm{.}00$

Unit production cost year $2$ $$545\mathrm{.}00$

Unit price year $1$ $$820\mathrm{.}00$

Unit price year $2$ $$650\mathrm{.}00$

Sales and production volume year $1270,000$

Sales and production volume year $2170,000$

Interest rate $10\%$

$1.$What are the yearly cash flows and their present value $($discounted at $10$ percent$)$ of this project? What is the net present value?

$2.$Perot$$s engineers have determined that spending $$10$ million more on development will allow them to add even more advanced features. Having a more advanced chip will allow them to price the chip $$50$ higher in both years $($$$870$ for year $1$ and $$700$ for year $2).$ What is the NPV of the project if this option is implemented?

$3.$If sales are only $240,000$ the first year and $120,000$ the second year, what would the NPV of the project be$?$ Assume the development costs and sales price are as originally estimated.