Question: (SHOW ALL THE WORK)

1) KidCo has produced a new remote operated toy for children. It costs KidCo $45 to produce and package each toy. KidCo sells the game to various retailers (e.g., toy stores and discount stores), and sets the wholesale price to achieve a 60% markup on cost. If these retailers, in turn, calculate their price (i.e., to consumers) based on a 40% markup on the retail price how much will a consumer pay for the toy? Show your work.

2) Electro Company is planning to develop a new electric motorcycle. It estimates that it will need to invest $45 million in equipment and facilities. Its management team estimates that the new motorcycle will generate a net cash flow of $8 million in year 1, $11 million in year 2, $14 million in year 3, $18 million in year 4, and $24 million in year 5. Assuming that Electro evaluates all investments using a 15% rate of return (i.e., discount rate), what is the NPV of this project? Should it proceed? Show your work, and explain the reasoning for your answer.