Planning to add an additional product to its portfolio

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Reference no: EM131550965

WM3 is planning to add an additional product to its portfolio. Costs with R&D and retooling of production are estimated to be $300,000, paid by December 31, 2017. The product can be launched until the end of 2017 but production will start only next year. Useful life of this product is estimated to be uniformly distributed over 5, 6 and 7 years. There is a 20% chance that yearly demand of this product will be normally distributed with a mean of 8,000 and standard deviation of 600, 60% chance that yearly demand will be normally distributed with a mean of 12,000 and standard deviation of 1,200, and 20% chance that yearly demand will be normally distributed with a mean of 18,000 and standard deviation of 2,000. The manufacturing engineering department estimated annual fixed expenses and variable cost to be $75,000 and $36, respectively. Moreover, the marketing department estimated unit price to be $51. WM3 agreed to produce this new product at its facility in San Luis, AZ, which currently has the highest unemployment rate among all US cities. Because of that, the US government will not tax any profit made with this product.

Let MARR be 15% and tax rate be 34%. You can use any analysis method you want (PW, EUAW, ΔIRR, ΔB/C)

Reference no: EM131550965

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