First-Year Sales 75,000 100,000 120,000

Estimates for the Trek

The production and selling price would rise with inflation (estimated to be 5% per year with standard deviation 1.5%). Demand in future years will be forecast to be equal to the previous years demand with a standard deviation of 10% of the forecast.

GF Motors uses a 10% hurdle rate (i.e., the discount rate in calculating NPV) when evaluating new projects. Which car design should they pursue, if any?

3. NPV Analysis (Simulation) The General Ford Motors Corporation (GF Motors) is considering developing one of two new car designs. The Vector is a radically designed hybrid between a pickup and SUV. The Trek is a more conventional mid-size SUV design. GF Motors assumes both designs would generate sales for the next 10 years. Both designs would sell for $25,000. Estimates for the design and development costs, first-year production costs, and first-year demand are given below. Maximum Design Development Cost First-Year Production Cost First-Year Sales Minimum Most-Likely $4.3 billion $4.5 billion $18,200 $18,600 10,000 150,000 Estimates for the Vector $5.5 billion $21,800 200,000 Minimum Most-Likely Maximum $4.1 billion $4.5 billion Design/Development Cost First-Year Production Cost $4.3 billion $18,400 $17,600 $18,800 3. NPV Analysis (Simulation) The General Ford Motors Corporation (GF Motors) is considering developing one of two new car designs. The Vector is a radically designed hybrid between a pickup and SUV. The Trek is a more conventional mid-size SUV design. GF Motors assumes both designs would generate sales for the next 10 years. Both designs would sell for $25,000. Estimates for the design and development costs, first-year production costs, and first-year demand are given below. Maximum Design Development Cost First-Year Production Cost First-Year Sales Minimum Most-Likely $4.3 billion $4.5 billion $18,200 $18,600 10,000 150,000 Estimates for the Vector $5.5 billion $21,800 200,000 Minimum Most-Likely Maximum $4.1 billion $4.5 billion Design/Development Cost First-Year Production Cost $4.3 billion $18,400 $17,600 $18,800