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Problem 3 - 1 1 ( Algo ) Perot Corporation is developing a new CPU chip based on a new type of technology. Its new
Problem Algo Perot Corporation is developing a new CPU chip based on a new type of technology. Its new chip, the Patay chip, will take two years to develop. However, because other chip manufacturers will be able to copy the technology, it will have a market life of two years after it is introduced. Perot expects to be able to price the chip higher in the first year, and it anticipates a significant production cost reduction after the first year as well. The relevant information for developing and selling the Patay is given as follows: PATAY CHIP PRODUCT ESTIMATES Development cost Pilot testing Debug Rampup cost Advance marketing Marketing and support cost $ per year Unit production cost year Unit production cost year Unit price year Unit price year Sales and production volume year Sales and production volume year Interest rate $ $ $ $ $ $ $ $ $ $ Patay Chip Project Timing Assume all cash flows occur at the end of each period. a What is the net present value at the discount rate of of this project? Negative value should be indicated by a minus sign. Enter your answer in thousands of dollars. Round your answer to the nearest thousand. Net present value b Perot's engineers have determined that spending $ million more on development will allow them to add even more advanced features. Having a more advanced chip will allow them to price the chip $ higher in both years $ for year and $ for year What is the NPV of the project if this option is implemented? Negative value should be indicated by a minus sign. Enter your answer in thousands of dollars. Round your answer to the nearest thousand. Net present value c If sales are only the first year and the second year, what would the NPV of the project be Assume the development costs and sales price are as originally estimated. Negative value should be indicated by a minus sign. Enter your answer in thousands of dollars. Round your answer to the nearest thousand.
Problem Algo
Perot Corporation is developing a new CPU chip based on a new type of technology. Its new chip, the Patay chip, will take two years
to develop. However, because other chip manufacturers will be able to copy the technology, it will have a market life of two years after
it is introduced. Perot expects to be able to price the chip higher in the first year, and it anticipates a significant production cost
reduction after the first year as well. The relevant information for developing and selling the Patay is given as follows:
PATAY CHIP PRODUCT ESTIMATES
Development cost
Pilot testing
Debug
Rampup cost
Advance marketing
Marketing and support cost $ per year
Unit production cost year
Unit production cost year
Unit price year
Unit price year
Sales and production volume year
Sales and production volume year
Interest rate
$
$
$
$
$
$ $
$
$
$
Patay Chip Project Timing
Assume all cash flows occur at the end of each period.
a What is the net present value at the discount rate of of this project? Negative value should be indicated by a minus sign.
Enter your answer in thousands of dollars. Round your answer to the nearest thousand.
Net present value
b Perot's engineers have determined that spending $ million more on development will allow them to add even more advanced
features. Having a more advanced chip will allow them to price the chip $ higher in both years $ for year and $ for year
What is the NPV of the project if this option is implemented? Negative value should be indicated by a minus sign. Enter your answer
in thousands of dollars. Round your answer to the nearest thousand.
Net present value
c If sales are only the first year and the second year, what would the NPV of the project be Assume the
development costs and sales price are as originally estimated. Negative value should be indicated by a minus sign. Enter your
answer in thousands of dollars. Round your answer to the nearest thousand.
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