**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%**	




What are the yearly cash flows and their present value (discounted at 8 percent) of this project? What is the net present value?
**Note: Enter your answer in thousands of dollars. Perform all calculations using Excel. Do not round any intermediate calculations. Round your answer to the nearest thousand.**





 What is the impact on NPV for the Kiddy Dozer if the actual sales are 50,000 per year? 70,000 per year?
**Note: Enter your answer in thousands of dollars. Perform all calculations using Excel. Do not round any intermediate calculations. Round your answer to the nearest thousand.**





Based on the original sales level of 60,000, what is the effect on NPV caused by changing the discount rate to 9%, 10%, or 11%? 
**Note: Enter your answer in thousands of dollars. Perform all calculations using Excel. Do not round any intermediate calculations. Round your answer to the nearest thousand.**



To answer these questions, you will need to perform calculations in Excel as specified. Here’s how you can approach each part:

### **1. Yearly Cash Flows and NPV Calculation at 8% Discount Rate**
   
**Yearly Cash Flow Calculation:**
- **Revenue:** 
  \[
  \text{Revenue} = \text{Sales Volume} \times \text{Unit Price} = 60,000 \times \$240 = \$14,400,000
  \]
- **Cost:** 
  \[
  \text{Cost} = \text{Sales Volume} \times \text{Unit Production Cost} = 60,000 \times \$100 = \$6,000,000
  \]
- **Gross Profit:** 
  \[
  \text{Gross Profit} = \text{Revenue} - \text{Cost} = \$14,400,000 - \$6,000,000 = \$8,400,000
  \]
- **Net Cash Flow:**
  \[
  \text{Net Cash Flow} = \text{Gross Profit} - \text{Marketing and Support Cost} = \$8,400,000 - \$150,000 = \$8,250,000 \text{ per year}
  \]

**NPV Calculation:**
- **Initial Investment:** 
  \[
  \text{Year 0} = -\$2,200,000
  \]
- **Year 1 to 9:** Calculate the present value of each year's cash flow:
  \[
  \text{PV} = \frac{\text{Cash Flow}}{(1 + r)^t}
  \]

Using Excel:
1. In Excel, enter the values for each year's cash flow.
2. Use the NPV formula: `=NPV(rate, value1, [value2], ...)`
3. Sum the NPV of each year’s cash flow with the initial investment.

### **2. Impact on NPV for Different Sales Volumes (50,000 and 70,000 per year)**

**Yearly Cash Flow Calculation:**
- **For 50,000 units:**
  - Revenue: $50,000 \times 240 = \$12,000,000$
  - Cost: $50,000 \times 100 = \$5,000,000$
  - Net Cash Flow: $\$12,000,000 - \$5,000,000 - \$150,000 = \$6,850,000$
  
- **For 70,000 units:**
  - Revenue: $70,000 \times 240 = \$16,800,000$
  - Cost: $70,000 \times 100 = \$7,000,000$
  - Net Cash Flow: $\$16,800,000 - \$7,000,000 - \$150,000 = \$9,650,000$

**NPV Calculation:**
- Repeat the NPV calculation using the adjusted yearly cash flows for both 50,000 and 70,000 units.

### **3. Effect on NPV with Discount Rate Changes (9%, 10%, and 11%)**

Using Excel:
1. Copy your original NPV calculation.
2. Change the discount rate to 9%, 10%, and 11% respectively using the NPV formula.
3. Compare the NPV results for each discount rate.

### **Summary of Steps in Excel:**
1. **Input Data:**
   - List out each year's cash flow based on the given or adjusted sales volumes.
2. **Calculate NPV:**
   - Use the `=NPV()` function for each scenario.
3. **Sensitivity Analysis:**
   - Adjust the discount rate and sales volumes to see how the NPV changes.

### **Expected Outputs:**
1. **Original NPV with 60,000 units at 8%**
2. **NPV with 50,000 units at 8%**
3. **NPV with 70,000 units at 8%**
4. **NPV with 60,000 units at 9%**
5. **NPV with 60,000 units at 10%**
6. **NPV with 60,000 units at 11%**

By following these steps in Excel, you will have the precise NPVs for each scenario.

Learn how to calculate yearly cash flows, present values (discounted at 8%), and net present value (NPV) for a business project with given financial parameters such as development costs, sales volumes, unit prices, and discount rate. Explore the impact of different sales volumes and discount rates on NPV.

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