You are considering developing a new product. Forecastyear 1 sales are for 80,000 units, and the year 1 price is$4.00 per unit. In file Simidata.xls you are given data onseven similar products from...

You are considering developing a new product. Forecastyear 1 sales are for 80,000 units, and the year 1 price is$4.00 per unit. In file Simidata.xls you are given data onseven similar products from the past. (See Figure 63.)For example,For product 1, actual sales were 92.26% of forecast sales.Year 2 price (in real dollars) was 76.7% of year 1 price.Year 2 demand was 30.7% more than year 1 demand.Product 1 only sold for 6 years.The risk-adjusted discount rate is 11% per year. We assumethat the price index will climb 5% per year.We are unsure about the fixed cost of developing theproduct. It is equally likely to be $50,000 or $150,000. Weare also unsure about the year 1 variable cost of producingit. It is equally likely to be $1, $1.50, or $2. After year 1,variable cost will climb by 5% per year. It costs $3 to buildone unit of annual capacity.a Assuming 80,000 units of annual capacity, estimatethe 10-year risk-adjusted NPV of this product.b What capacity level do you recommend?

Extracted text: FIGURE 63 A B C F G H 6 Other Products 7 Forecast Year 1 8 Actual Year 1 9 Year 1 Price 10 Year 2 Price %age change 11 Year 3 Price % age change 12 Year 4 Price % age change 13 Year 5 Price %age change 14 Year 6 Price % age change 15 Year 7 Price %age change 16 Year 8 Price % age change 17 Year 9 Price % age change 18 Year 10 Price %age change 19 Year 2 % change in demand 20 Year 3 % age change change in demand 21 Year 4 % change change in dem and 22 Year 5 % age change change in demand 23 Year 6 % change change in dem and 24 Year 7 % age change change in demand 25 Year 8 %age change change in demand 26 Year 9 % age change change in demand 27 Year 10 %age change change in demand 1 2 3 4 5 10000 15000 20000 25000 30000 18000 12000 9226 18544 20147 24093 27517 21670 12345 10.00 $ 11.00 $ 12.00 $ 9.00 $ 8.00 $ 7.00 $9.00 0.7671376 1.01958 1.157148 0.799233 0.66222 0.96338| 1.108995 0.77301544 0.916731 0.629211 0.763033 0.785409 1.12807| 0.770459 0.93641094 1.07326 0.704279 1.032535 1.214266 0.607159 0.635232 0.62486148 0.838744 0.730323 1.128628 1.222691 0.915762| 0.709054 0.9909713 0.836317 1.178683 0.835511 1.186193 0.98035 0.870983 0 1.154532 0.778286 1.008012 1.155539 0.83953 1.044165 0| 0.789561 0 0.800709 0 0.963354 1.30771172 1.257895 1.30467 1.326283 1.371715 1.203553 1.246827 1.35463816 1.176022 1.439216 1.681935 1.186842| 1.105765| 0.705081 0.89116031 1.156565 0.940743 1.060037| 0.953028 1.280444 0.927083 0.62 0.728722 0.956427 0.744345 0.711915| 0.710494| 0.536207 0.6862 0.613999 0.572403 0.393907 0.432 0.269806 0.561965| 0 0.288539 0.22 0 0.866046 0.933498 0 1.137376 0 1.002691 0.991726 0.70686 0.871703 0 0.748535 0 0.804221 0.53 0.529757 0.571999 0 0.298447 0.193459 0.375018 0 0.305065 0.314531 0.298697 0.294049 0.2 0.25 0.2 0.15 0.16 0.12