Mars Incorporated is interested in going to market with a new fuel savings device that attaches to electrically powered industrial vehicles. The device, code named "Python," promises to save up to 15% of the electrical power required to operate the average electric forklift. Mars expects that modest demand expected during the introductory year will be followed by a steady increase in demand in subsequent years. The extent of this increase in demand will be based on customer's expectations regarding the future cost of electricity, which is shown in Table 1. Mars expects to sell the device for $300 each, and does not expect to be able to raise its price over the foreseeable future. Mars is faced with two alternatives Alternative - Make the device themselves, which requires an initial outlay of $450,000 in plant and equipment and a variable cost of $175 per unit Alternative 2. Outsource the production, which requires no initial investment, but incursa per unit cost of $190. Click the icon to view Table a. Assuming small increases in the cost of electrical power, compute the cash flows for each alternative. Over the next 5 years, which alternative maximizes the NPV of this project if the discount rate is 13%? Determine cash flows for alternative 1 and fill in the table below. (Enter your responses as whole numbers. Be sure to include a minus sign for cash outflows.) Year Demand in devices Cash inflow (outflow) s 0 S 1 2 s 3 1.000 5,000 10,000 15,000 18,000 4 5 S $ s The NPV for altomative 1 is $ (Enter your response rounded to the nearest whole number! Determine cash flows for alternative 2 and fill in the table below. (Enter your responses as whole numbers. Be sure to include a minus sign for cash outflows.) Year Demand in devices Cash inflow (outflow) 0 1 S 2 S 3 1.000 5.000 10,000 15,000 18,000 $ 4 S 5 S The NPV for alternative 2 is $ (Enter your response rounded to the nearest whole number) Thus, (1) maximizes the NPV of this project in the case of small increases in the cost of electrical power. b. Assuming large increases in the cost of electrical power, compute the cash flows for each alternative. Over the next 5 years, which alternative maximizes the NPV of this project if the discount rate is 13%? Determine cash flows for alternative 1 and fill in the table below. (Enter your responses as whole numbers. Be sure to include a minus sign for cash outflows.) Year Demand in devices Cash inflow (outflow) 0 $ 1 $ 2 1,000 8,000 15,000 $ 3 $ 4 20,000 $ 5 30,000 $ The NPV for alternative 1 is $ (Enter your response rounded to the nearest whole number.) Determine cash flows for alternative 2 and fill in the table below. (Enter your responses as whole numbers. Be sure to include a minus sign for cash outflows.) Year Demand in devices Cash inflow (outflow) $ 0 1 1,000 $ 2 8,000 $ 3 15,000 $ 4 $ 20,000 30,000 5 $ The NPV for alternative 2 is $ (Enter your response rounded to the nearest whole number.) Thus, (2) maximizes the NPV of this project in the case of large increases in the cost of electrical power. 1: More Info 2 Year 1 Expected Demand of the Device in Units/Year Small Increases in the Cost Large Increases in the of Electrical Power Cost of Electrical Power 1,000 1,000 5,000 8,000 10,000 15,000 15,000 20,000 18,000 30,000 2 3 4 5 onuntiatiedotatable inte DOM for Windowe