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.

  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?

    NPV_50,000$     NPV_70,000$    

c.What is the effect on NPV caused by changing the discount rate to 9%, 10%, or 11%?