Develop spreadsheet model to calculate net present value

Assignment Help Operation Management

Reference no: EM132133293

For a new product, sales volume in the first year is estimated to be 80,000 units and is projected to grow at a rate of 4% per year. The selling price is $12 and will increase by $0.50 each year. Per-unit variable costs are $3, and annual fixed costs are $400,000. Per-unit costs are expected to increase 5% per year. Fixed costs are expected to increase 8% per year.

a. Develop a spreadsheet model to calculate the net present value of profit over a 3-year period, assuming a 4% discount rate.

b. Construct a tornado chart and explain the sensitivity of each of the model’s parameters on the NPV of profit.

c. Suppose that the first-year sales volume is normally distributed with a mean of 100,000 units and a standard deviation of 10,000. Use the NORM.INV function and a one-way data table to conduct a Monte Carlo simulation to find the distribution of the net present value profit over the 3-year period.

Reference no: EM132133293

Questions Cloud

Organizations can emphasize creativity by : Patrice decides to use an idea box as a technique for finding a creative solution. Organizations can emphasize creativity by

Office administration-investigating direct trading platforms : Operational Manager, Office Administration, investigating Direct Trading Platforms.

Discuss how you would practice path-goal leadership style : Discuss how you would practice the path-goal leadership style in a financial services work environment.

Organization rather than from within is commonly referred : Hostility to ideas that come from outside the organization rather than from within is commonly referred to as

Develop spreadsheet model to calculate net present value : Develop a spreadsheet model to calculate the net present value of profit over a 3-year period, assuming a 4% discount rate.

Multiple steps in producing and distributing loaves of bread : Consider the multiple steps (markets) involved in producing and distributing the loaves of bread that you find in your local supermarket.

Capabilities for knowledge management and decision making : Considering IBM's Watson online. Explain Watson’s capabilities for knowledge management and decision making.

An inventor designs new product : An inventor designs a new product but finds a similar product already on the shelf.

Additional inventory cost is incurred due to safety stock : How much additional inventory cost is incurred due to the safety stock? What should be the reorder point?

User Account

All Pages