96%(26)25 out of 26 people found this document helpful
This preview shows page 13 - 18 out of 18 pages.
1. What is the NPV of the Base Case Scenario? Explain your work.2. What is the maximum development cost beyond which the development of the product cannot be justified?3. Explain the trade-off law for NPV versus development cost4. Explain the trade-off law for NPV versus sales volume
5. Create a graph of the Trade-off law relationship for Change in NPV vs Change in Development Cost. What is the equation of the Regressed trendline? Explain your work. Give the answer in the form y=mx+b.6. Create a graph of the Trade-off law relationship for Change in NPV vs Change in Sales Volume. What is the equation of the Regressed trendline? Explain your work. Give the answer inthe form y=mx+b.1. Read handout “Getting Started in Excel”2. Perform the exercise in the “Excel Tutorial” 3. Use the Excel workbook you built and update the worksheet ScernarioParametersto quickly analyze a new problem for the development and commercialization for a product called the “world car.” (A cheap affordable car designed for the whole world.)Step 3: Execute the PlanScenario ParametersBase Case
After plugging all the numbers into the Scenario Parameters and doing the calculations in the Base Case. The project NPV came out to be $61,888K.Here we can see that if we changed the development cost from 25,000,000 to 78,783,155.15 the NPV would be come 0.
-40%-30%-20%-10%0%10%20%30%40%-5,000-4,000-3,000-2,000-1,00001,0002,0003,0004,0005,000f(x) = - 14564.56xChange in NPV ($) vs Change in Dev Cost (%)Change in NPV ($) vs Change in Dev Cost (%)Linear (Change in NPV ($) vs Change in Dev Cost (%))Change in Development Cost, %Change in NPV, $In this graph, we can see that if change in development cost (%) goes down our Net Present Value (NPV) increases and vice versa. This makes sense because if our development cost (%) goes up then that means it takes much more money to make the project and if we sell it at a set price means we should be losing profit. And if development cost went down which would mean that the product is cheaper to make and in return we will get a bigger profit. This is the trade-off between NPV vs Development cost. We can also see that the equation for the regressed trendline is y = -14565x + 0 where m = -14565x and b = 0
-40%-30%-20%-10%0%10%20%30%40%-30,000-20,000-10,000010,00020,00030,000f(x) = 84764.39xChange in NPV ($) vs Change in Sales Volume (%)Change in NPV ($) vs Change in Sales Volume (%)Linear (Change in NPV ($) vs Change in Sales Volume (%))Change in Sales Volume, %Change in NPV, $In this graph, we can see that if change in sales volume (%) goes up then our net present value goes up as well. And if sales volume goes down the NPV will also decrease. This makes sense since if our sales percentage was to go up means that we should more units and out net present value would increase. If sales volume went down means, we are losing sales and our net present value would go down. This is the trade-off between Change in NPV vs Change in Sales Volume. We can also see the regressed trendline is y = 84764x + 0 where m = 84764x and b = 0.
If there is a 10% increase in development cost. The original development cost was 15,000,000 a 10% increase would me (15,000,000) (0.1) = 1,500,000. 15,000,000 + 1,500,000 = 16,500,000 bring us to a total of $16,500,000 in development cost. To get back to our original NPV of $61,888K we would have to increase our sales & production value by a certain percentage. After doing calculations we find out that we need exactly 1,290 more sales to get back to $61,888K. Which is 1.27% increase in sales.