Spreadsheet modeling and analysis

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Reference no: EM131504919

Spreadsheet Modeling and Analysis

As part of the company’s continues commitment to product innovation, the Executive Committee of PLE is debating whether to replace its original tractor model, the PLE-Classic, with a new model, the PLE-Tough, which would appeal to a younger clientele. Whatever tractor chosen will be produced for the next 4 years, after which time a reevaluation will be necessary. The PLE-Tough has passed through the concept and initial design phases and is ready for final design and manufacturing. Final development costs are estimated to be $1,750,000, and the new fixed costs for tooling and manufacturing are estimated to be $6 million. The PLE-Tough is expected to sell for $4,200. The first year sales for the PLE-Tough is estimated to be 4,000, with a sales growth for the subsequent years of 6% per year. The variable cost per vehicle is uncertain until the design and supply-chain decisions are finalized, but is estimated to be $2,300. Next-year sales for the PLE-Classic are estimated to be 3,500, but the sales are expected to decrease at a rate of 10% for each of the next 3 years. The selling price is $3,800. Variable costs per vehicle are $2,140. Since the model has been in production, the fixed costs for development have already been recovered.

a. Using the spreadsheet provided, develop a 4-year financial model to recommend the best decision using a net present value discount rate of 8%. Include the discount rate as an input variable in your model. Use the following layout for your financial model. Paste a screenshot of your model here.

b. What is the best decision using a net present value discount rate of 8%?

Reference no: EM131504919

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