Question: Perot Corporation is developing a new CPU chip based on a new type of technology. Its new chip, the Patay 2 chip, will take two
Perot Corporation is developing a new CPU chip based on a new type of technology. Its new chip, the Patay chip, will take two years to develop. However, because other chip manufacturers will be able to copy the technology, it will have a market life of two years after it is introduced. Perot expects to be able to price the chip higher in the first year, and it anticipates a significant production cost reduction after the first year as well. The relevant information for developing and selling the Patay is given as follows:
PATAY CHIP PRODUCT ESTIMATESDevelopment cost$Pilot testing$Debug$Rampup cost$Advance marketing$Marketing and support cost$per yearUnit production cost year $Unit production cost year $Unit price year $Unit price year $Sales and production volume year Sales and production volume year Interest rate
Assume all cash flows occur at the end of each period.
a What is the net present value at the discount rate of of this project? Negative value should be indicated by a minus sign. Enter your answer in thousands of dollars. Round your answer to the nearest thousand.
b Perots engineers have determined that spending $ 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 $ higher in both years $ for year and $ for year What is the NPV of the project if this option is implemented? Negative value should be indicated by a minus sign. Enter your answer in thousands of dollars. Round your answer to the nearest thousand.
c If sales are only the first year and the second year, what would the NPV of the project be Assume the development costs and sales price are as originally estimated. Negative value should be indicated by a minus sign. Enter your answer in thousands of dollars. Round your answer to the nearest thousand.
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