Problem 3-10

The Tuff Wheels was getting ready to start its development project for a new product to be added to their small motorized vehicle line for children. The new product is called the Kiddy Dozer. It will look like a miniature bulldozer, complete with caterpillar tracks and a blade. Tuff Wheels has forecasted the demand and the cost to develop and produce the new Kiddy Dozer. The table below contains the relevant information for this project.

Development cost	$	1,600,000
Estimated development time		9	months
Pilot testing	$	200,000
Ramp-up cost	$	400,000
Marketing and support cost	$	150,000	per year
Sales and production volume		60,000	per year
Unit production cost	$	100
Unit price	$	240
Interest rate		8	%

Tuff Wheels also has provided the project plan shown below. As can be seen in the project plan, the company thinks that the product life will be three years until a new product must be created.

a.	What is the net present value (discounted at 8%) of this project? Consider all costs and expected revenues. (Enter your answer in thousands of dollars. Round your answer to the nearest thousand.)

Net present value

$ 19061 IS incorrect.

b.	What is the impact on NPV for the Kiddy Dozer if the actual sales are 50,000 per year? $70,000 per year? (Enter your answer in thousands of dollars. Round your answer to the nearest thousand.)

NPV50,000	$ 15453 IS incorrect.
NPV70,000	$ 22669 IS 9incorrect.

c.	What is the effect on NPV caused by changing the discount rate to 9%, 10%, or 11%? (Enter your answer in thousands of dollars. Round your answer to the nearest thousand.)

NPV9%	$ 18683 IS incorrect.
NPV10%	$ 18317 IS incorrect.
NPV11%	$ 17961 IS incorrect.

Development cost	$	1,600,000
Estimated development time		9	months
Pilot testing	$	200,000
Ramp-up cost	$	400,000
Marketing and support cost	$	150,000	per year
Sales and production volume		60,000	per year
Unit production cost	$	100
Unit price	$	240
Interest rate		8	%

Tuff Wheels also has provided the project plan shown below. As can be seen in the project plan, the company thinks that the product life will be three years until a new product must be created.

a.	What is the net present value (discounted at 8%) of this project? Consider all costs and expected revenues. (Enter your answer in thousands of dollars. Round your answer to the nearest thousand.)

Net present value

$

b.	What is the impact on NPV for the Kiddy Dozer if the actual sales are 50,000 per year? $70,000 per year? (Enter your answer in thousands of dollars. Round your answer to the nearest thousand.)

NPV50,000	$
NPV70,000	$

c.	What is the effect on NPV caused by changing the discount rate to 9%, 10%, or 11%? (Enter your answer in thousands of dollars. Round your answer to the nearest thousand.)

NPV9%	$
NPV10%	$
NPV11%	$