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Tuff Wheels Was Getting Ready To Start Its Development Project

Tuff Wheels is preparing to develop a new product called the Kiddy Dozer, a miniature bulldozer toy for children. The development is estimated to cost $1 million over 9 months with additional costs of $200,000 for pilot testing and $400,000 for ramp-up. Annual marketing costs will be $150,000 and sales are forecast at 60,000 units per year at $100 production cost and $170 price per unit over a 3 year product life.

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Amit Pandey
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437 views1 page

Tuff Wheels Was Getting Ready To Start Its Development Project

Tuff Wheels is preparing to develop a new product called the Kiddy Dozer, a miniature bulldozer toy for children. The development is estimated to cost $1 million over 9 months with additional costs of $200,000 for pilot testing and $400,000 for ramp-up. Annual marketing costs will be $150,000 and sales are forecast at 60,000 units per year at $100 production cost and $170 price per unit over a 3 year product life.

Uploaded by

Amit Pandey
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Solved: Tuff Wheels was getting ready to start its

development project

Tuff Wheels was getting ready to start its development project for a new product to be added to
its small motorized vehicle line for children. The new product is called the 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 develop and pro-duce the new Kiddy Dozer. The table
below contains the relevant information for this project.
Development Cost............. $ 1,000,000
Estimated Development.......... Time 9 months
Pilot Testing................ $ 200,000
Ramp- up Cost............... $ 400,000
Marketing and Support Cost......... $ 150,000 per year
Sales and Production Volume......... 60,000 per year
Unit Production Cost........... $ 100
Unit Price................ $ 170 Interest Rate 8%

Tuff Wheels also has provided the project plan shown below. As can be seen in the project
plan, the company thinks that the product life will be three years until a new product must be
created.

a. What are the yearly cash lows and their present value (discounted at 8 percent) of this
project? What is the net present value?
b. What is the impact on NPV for the Kiddy Dozer if the actual unit 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 11percent?

ANSWER
https://solvedquest.com/tuff-wheels-was-getting-ready-to-start-its-development-project/

Reach out to [email protected] for enquiry.


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