ME 2024 Quantitative Financial Model (QFM) Exercise

Your team needs to decide whether or not to pursue the development of a sensor for detecting bombmaking chemicals based on the following estimated cash flows:
1.
2.
3.
4.
5.
6.
7.
8.

Development costs are $160,000/quarter for year 1

Ramp-Up costs are $40,000/quarter for Y1 Q4 and Y2 Q1
Production costs are $35,000/quarter for Y2 through Y3
Marketing costs are $20,000/quarter for Y2 and Y3
Product support costs are $5,000/quarter for Y1 and $20,000/quarter for Y2
Material costs are $15,000/quarter for Y2 and Y3
Sales Revenue is expected to be $200,000/quarter for Y2 and $350,000/quarter for Y3
The discount factor our company is using is a 1% quarterly rate.

Using Excel determine the following:

1. The project NPV = ________
2. If development costs double and all other variables remain the same:
NPV = _________________
3. If marketing costs increase by 27.6% and all other variables remain the same:
NPV = _________________
4. If both development costs double and marketing costs increase by 27.6 % and all
other variables remain the same:
NPV = ____________