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 10 percent​ (either above or​ below), associated with this new product are shown ​ here: 

Unit​ price:	​$127127
Variable​ costs:	​$7979
Fixed​ costs:	​$253 comma 000253,000 per year
Expected​ sales:	10 comma 20010,200 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 10 percent higher or 10percent lower than expected. Assume that this new product line will require an initial outlay of $1.17 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 10.3 ​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—unit price 10 percent above​ expected, variable costs 10 percent less than​ expected, fixed costs 10 percent less than​ expected, and expected sales 10 percent more than​ expected). Calculate the​ project's NPV under the​ "worst-case scenario."

The NPV for the​ best-case scenario will be $

The NPV for the​ worst-case scenario will be $

Answer 1