Assumptions: Regular With automated machinery

Unit sales, first year 1,600

Unit price, first year $1,800
Unit manufacturing cost $1,000 $800 reduces by
Yearly sales growth 100%
Yearly price fall 15%
Yearly decline in manufacturing costs 6% 6%
Marketing expense as % of revenue 14%
Yearly fixed cost $1,000,000 $2,000,000 increases by
Discount rate 15%

Year 1 Year 2 Year 3

Unit sales 1,600 3,200 6,400
Unit price $1,800.00 $1,530.00 $1,300.50
Revenue $2,880,000.00 $4,896,000.00 $8,323,200.00
Unit manufacturing cost (regular) $1,000.00 $940.00 $883.60
Unit manufacturing cost (with automation) $800.00 $752.00 $706.88
Total manufacturing cost $2,600,000.00 $4,008,000.00 $6,524,032.00
Automate? no no yes
Marketing expense $403,200.00 $685,440.00 $1,165,248.00
Profit before tax ($123,200.00) $202,560.00 $633,920.00

Net Present Value (NPV): $2,754,623.43

 Session 7 Q2.d) Session 7 Q2.e)
20% $2,754,623.43
50% -739468.13005 $2,754,623.43
55% -537187.89264 50%
60% -269904.21613 55%
65% 21965.0322116 60%
100% 70% 333471.292164 65%
75% 665544.29634 70%
80% 1019135.66902 75%
Year 4 Year 5 85% 1395218.92614 80%
12,800 25,600 90% 1808422.8903 85%
$1,105.43 $939.61 95% 2268286.48155 90%
$14,149,440.00 $24,054,048.00 100% 2754623.42523 95%
$830.58 $780.75 100%
$664.47 $624.60
$10,505,180.16 $17,989,738.70
yes yes
$1,980,921.60 $3,367,566.72
$1,663,338.24 $2,696,742.58
 10% 11% 12% 13% 14% 15% 16% 17%
1106585.12 719273.73 341173.05 -27878.01 -388039.04 -739468.13 -1082321.89 -1416755.41
1509188.51 1079567.38 660300.94 251206.56 -147896.65 -537187.89 -916844.65 -1287042.72
1993193.43 1517779.91 1053968.64 601553.38 160329.88 -269904.22 -689349.30 -1098203.85
2519084.24 1994203.30 1482281.84 983087.84 496391.46 21965.03 -440416.88 -890977.56
3082839.35 2504618.28 1940829.90 1391214.02 855512.90 333471.29 -175163.59 -670642.07
3686340.27 3050703.38 2431094.80 1827223.67 1238801.94 665544.30 107168.22 -436606.06
4331515.14 3634178.47 2954594.76 2292439.88 1647392.82 1019135.67 407353.61 -188265.07
5020338.76 4256804.79 3512884.26 2788217.00 2082446.30 1395218.93 726185.10 74998.49
5768466.02 4934018.36 4121187.43 3329574.08 2558783.05 1808422.89 1078106.03 367448.74
6586486.68 5676184.77 4789652.83 3926449.70 3086138.46 2268286.48 1472465.41 698251.15
7455290.05 6463963.87 5498718.21 4559066.61 3644527.35 2754623.43 1888882.57 1046837.24
 18% 19% 20%
-1742922.30 -2060974.67 -2371063.13
-1647956.16 -1999757.37 -2342616.99
-1496664.38 -1884925.49 -2263179.83
-1329938.08 -1757517.32 -2173931.99
-1153212.01 -1623118.77 -2080605.29
-966055.51 -1481454.35 -1983074.02
-768028.96 -1332243.58 -1881211.33
-558683.75 -1175201.02 -1774889.25
-323928.86 -996402.80 -1650345.25
-54776.10 -787031.89 -1498927.48
228024.63 -568013.35 -1341730.05