Question

Family Security is considering introducing tiny GPS trackers that can be inserted in the sole of a​ child's shoe, which would then allow for the tracking of that child if he or she was ever lost or abducted. The​ estimates, that might be off by 11 percent​ (either above or​ below), associated with this new product are shown ​ here: 

Unit​ price:	​$130
Variable​ costs:	​$74
Fixed​ costs:	​$247,000 per year
Expected​ sales:	10,900 per year

Since this is a new product​ line, you are not confident in your estimates and would like to know how well you will fare if your estimates on the items listed above are 11 percent higher or 11 percent lower than expected. Assume that this new product line will require an initial outlay of ​$1.09 ​million, with no working capital​ investment, and will last for 10 ​years, being depreciated down to zero using​ straight-line depreciation. In​ addition, the​ firm's required rate of return or cost of capital is 9.9 ​percent, and the​ firm's marginal tax rate is 34 percent. Calculate the​ project's NPV under the​ "best-case scenario"​ (that is, use the high estimates long-unit price 11 percent above​ expected, variable costs 11 percent less than​ expected, fixed costs 11 percent less than​ expected, and expected sales 11 percent more than​ expected). Calculate the​ project's NPV under the​ "worst-case

The NPV for the​ best-case scenario will be

The NPV for the​ worst-case scenario will be

Answer 1

The NPV for best case scenario = $2,051,875

The NPV for worst case Scenario = $ - 697,395 (-ve)

Best Case Scenario Excel Modeling

Worst Case Scenario Excel Modeling