Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / Company designed a new computer chip
Company designed a new computer chip. Its new chip, the Dolo2 will take 2 years to develop but it will only have a viable market life of two years after it is developed. It will price the chip higher the first year and because it will have to lower the price due to market pressure it is planning on finding new ways to reduce its production costs the second year. The relevant information about the project is as follows:
Development costs $20,000,000
Pilot testing $5,000,000
Debugging $3,800,000
Ramp up cost $3,000,000
Pre Marketing $6,600,000
Marketing and support cost $1,000,000per year
Unit production cost year1 $655
Unit production cost year2 $545
Unit price year1 $820
Unit price year2 $650
Sales&prod volume yr1 250,000
Sales&prod volume yr2 150,000
Interest rate 10%
Project year 1 year 2 year3 year4
Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec
Devel ******************************
Pilot test *********************************
Debug ***************
Ramp up *******
AdvMkt *******
Marketing&spt ***********************************
Production&sales ***********************************
a. What are the yearly cash flows and their present value (discounted at the 10% rate of this project? What is the net present value of the project? Note use excel to work these problems.
b. Hightech's engineers have determined that spending $10,000,000 more on development will allow them to add even more advanced features. Having more advanced features will allow them to price the chip $50 higher in both years 3 and 4.
c. If sales are only 200,000 in year 3 and 100,000 in year 4 would high-tech still do the project?
