A machine exploits a proprietary technology making costs per unit €10 less than for the next most efficient competitor. The machine produces 100,000 units per year. The expected life of this competitive advantage is five years. Management has decided not to change the price for the product unless forced to do so by the competition. Investment in the machine is the same as for competitors to make the equivalent product. The tax rate is 30%, and the discount rate is 10%.

(a) Assuming a competitive market, what is the machine’s NPV?

(b) What would be the NPV of the machine if its cost becomes €200,000 more than the competitors must pay for their less efficient machines?

(c) What is the minimum the NPV is likely to fall if a competitor can exploit an equally effective technology in two years instead of five years and seeks to increase market share by reducing its price?