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Cash Flows, Present VAlue, NPV, Sensitivity Analysis

The Tuff Wheels was getting ready to start their development project for a new product to be added to their small motorized vehicle line for children. The new product is called Kiddy Dozer. It will look like a miniature bulldozer, complete with caterpillar tracks and a blade. Tuff Wheels has forecasted the demand and the cost to development and produce the new Kiddy Dozer.

a. What are the yearly cash flows and their present value (discounted at 8%) of this project? What is the net present value?

b. What is the impact on NPV for the Kiddy Dozer if the actual sales are 50,000 per year or 70,000 per year?

c. What is the effect caused by changing the discount rate to 9%, 10%, or 11%

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Solution Preview

Please see the attached Excel 97-2003 workbook.

If forecast sales decrease from 60,000 per year to 50,000 per year, the expected net present value of the project ...

Solution Summary

This solution illustrates how to determine free cash flows, the present value of free cash flows, the net present value of a project and what happens if the yearly sales or discount rate changes.