Hit or Miss Sports is introducing a new product this year. If its see-at-night s
ID: 2623335 • Letter: H
Question
Hit or Miss Sports is introducing a new product this year. If its see-at-night soccer balls are a hit, the firm expects to be able to sell 63,000 units a year at a price of $80 each. If the new product is a bust, only 43,000 units can be sold at a price of $75. The variable cost of each ball is $50, and fixed costs are zero. The cost of the manufacturing equipment is $7.5 million, and the project life is estimated at 10 years. The firm will use straight-line depreciation over the 10-year life of the project. The firm
Hit or Miss Sports is introducing a new product this year. If its see-at-night soccer balls are a hit, the firm expects to be able to sell 63,000 units a year at a price of $80 each. If the new product is a bust, only 43,000 units can be sold at a price of $75. The variable cost of each ball is $50, and fixed costs are zero. The cost of the manufacturing equipment is $7.5 million, and the project life is estimated at 10 years. The firm will use straight-line depreciation over the 10-year life of the project. The firm
Explanation / Answer
a-1.
If each outcome is equally likely, what is expected NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars not in millions. Round your answer to the nearest dollar amount.)
If its see-at-night soccer balls are a hit
Depreciation = 7.5*1000000/10= 750,000
Operating cash flow = (63000*(80-50) - 750,000)*(1-40%) + 750,000=1434000
NPV = -7.5*1000000 + 1434000/1.11 + 1434000/1.11^2 + 1434000/1.11^3
a-1.
If each outcome is equally likely, what is expected NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars not in millions. Round your answer to the nearest dollar amount.)