Year 0 1 2 3

Sales Volume 77,700 99,750 131,250

Unit Price 360 360 360
Variable Cost 155 155 155

Total Revenue 27,972,000 35,910,000 47,250,000

Total Variable Cost 12,043,500 15,461,250 20,343,750
Fixed Cost 4,700,000 4,700,000 4,700,000
Depreciation 3,072,350 5,265,350 3,760,350
Profit Before Tax 8,156,150 10,483,400 18,445,900
Tax (35%) 2,854,653 3,669,190 6,456,065
Net Income 5,301,498 6,814,210 11,989,835
Depreciation 3,072,350 5,265,350 3,760,350
Operating Cash Flow 8,373,848 12,079,560 15,750,185

Net Working Capital

Beg - 5,594,400 7,182,000
End - 5,594,400 - 7,182,000 - 9,450,000
Change in NWC - 5,594,400 - 1,587,600 - 2,268,000

Equipment 21,500,000
Prototype 750,000
Marketing 200,000
Operating Cash Flow 8,373,848 12,079,560 15,750,185
Change in NWC - 5,594,400 - 1,587,600 - 2,268,000
Total Cash Flow - 22,450,000 2,779,448 10,491,960 13,482,185

Book Value 4,796,650

Market Value 4,100,000
Loss on Sale 696,650
Tax Benefit in Loss 243,828
Net Inflow 4,343,828

Year Total Cash Flow PV

0 - 22,450,000 - 22,450,000
1 2,779,448 2,481,650
2 10,491,960 8,364,126
3 13,482,185 9,596,353
4 14,087,685 8,952,979
5 21,091,810 11,968,059

1. How sensitive in the NPV to change in the price of the new PDA?

Change in Price Price NPV Change in NPV

-20% 288 1,154,589 -93%
-15% 306 5,051,177 -70%
-10% 324 8,948,966 -47%
-5% 342 12,846,154 -23%
0% 360 16,743,342 0%
5% 378 20,640,530 23%
10% 396 24,537,718 47%
15% 414 28,434,907 70%
20% 432 32,332,095 93%
 4 5 Discount Rate 12%
110,250 84,000 NPV 18,913,167
360 360 18,913,167
155 155 IRR 35%
PI 1.8425
39,690,000 30,240,000
17,088,750 13,020,000 2. How sensitive is the NPV to changes in the quantity sold of the new PD
4,700,000 4,700,000
2,685,350 1,919,950 Change in Quantity Year 1 Year 2
15,215,900 10,600,050 -20% 59,200 76,000
5,325,565 3,710,018 -15% 62,900 80,750
9,890,335 6,890,033 -10% 66,600 85,500
2,685,350 1,919,950 -5% 70,300 90,250
12,575,685 8,809,983 0% 74,000 95,000
5% 77,700 99,750
10% 81,400 104,500
9,450,000 7,938,000 15% 85,100 109,250
- 7,938,000 - 20% 88,800 114,000
1,512,000 7,938,000

12,575,685 8,809,983
1,512,000 7,938,000
14,087,685 16,747,983
quantity sold of the new PDA?

Year 3 Year 4 Year 5 NPV Change in NPV

100,000 84,000 64,000 8,064,043 -52%
106,250 89,250 68,000 10,233,868 -39%
112,500 94,500 72,000 12,403,692 -26%
118,750 99,750 76,000 14,573,517 -13%
125,000 105,000 80,000 16,743,342 0%
131,250 110,250 84,000 18,913,167 13%
137,500 115,500 88,000 21,082,992 26%
143,750 120,750 92,000 23,252,816 39%
150,000 126,000 96,000 25,422,641 52%