$350,000 investment is required for equipment, plus installation costs of $50,000. Investment is depreciated using 7 Yr MACRS table.

Develop the three distributions for the following uncertainties:

Production output is 10,000 units (year 1)

i.Growth expected to be 15% each year

Worst Case -10% (for net 5% growth)

Best Case +10% (for net 25% growth)

Equal probability over seven intervals (i.e. 14.2857% each)

Sales price set to $70 each (year 1)

i.Worst Case -10%

ii.Best Case +10%

iii.Price variance follows Normal Distribution characteristics, per below:

Cost Change	-10.00%	-7.00%	-3.50%	0%	3.50%	7.00%	10.00%
Probability	0.21%	2.28%	15.87%	63.28%	15.87%	2.28%	0.21%

Variable cost is $35 per unit (year 1)

i.Growth expected to be mostly negative due to learning

Worst Case +7.5%

Best Case -10%

Probability over seven intervals favors cost reduction; 40% chance of no change, only small chances for marginal price increases

Since this is a high risk venture, MARR is set high at 20%

Tax rate of 29%

Fixed costs are $200,000; and increase to $300,000 for production rates over 12,500 units

Record the NPV values for diverse uncertainty profiles of the variables over at least 100 simulations

Analyze the collected NPV values

Should the manufacturer pursue the investment? Why or why no