SmartView Electronics has decided to sell a new line of Televisions The TVs will sell for $705 per set and have a variable cost of $320 per set The company has spent $200,000 for a marketing study that determined the company will sell 65,000 sets per year for seven years The marketing study also determined that the company will lose sales of 12,000 sets annually of its high end TV The high end TVs sell at $1,300 and have variable costs of $700 The company will also increase sales of its low end TVs by 11,000 sets annually The low end TVs sell for $300 and have variable costs of $125 per set The fixed costs each year will be $9,800,000 The company has also spent $1,500,000 on research and development for the new TV The equipment required will cost $35,500,000 and will be depreciated using the 7 year MACRS schedule The new TVs will also require an increase in net working capital of $1,600,000 that will be returned at the end of the project The equipment can be sold at the end of seven years for $1,700,000 The tax rate is 26 percent, and the cost of capital is 15 percent Should the project be accepted Suppose the price of the new TV could vary by $10, how sensitive is the analysis to changes in the price of the new TV Suppose in the best case scenario, the price of the new TV is $750, with variable costs per unit of $300, and units sold of 75,000 In the worst case scenario the price of the new TV is $675 with variable costs per unit of $375, and units sold of 60,000 What are the NPVs for the best and worst case scenarios Perform a simulation of net cash flows 1 7 assuming that the price of the new TV is normally distributed with a mean of $705 and a standard deviation of $15, that the variable costs for the new TV are normally distributed with a mean of $320 and a standard deviation of $10, and that units sold for the new TV are uniformally distributed between 60,000 and 75,000 units per year Use 10,000 iterations for this simulation

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SmartView Electronics has decided to sell a new line of Televisions. The TVs will sell for $705 per set and have a variable cost of

SmartView Electronics has decided to sell a new line of Televisions. The TVs will sell for $705 per set and have a variable cost of $320 per set. The company has spent $200,000 for a marketing study that determined the company will sell 65,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 12,000 sets annually of its high-end TV. The high-end TVs sell at $1,300 and have variable costs of $700. The company will also increase sales of its low-end TVs by 11,000 sets annually. The low-end TVs sell for $300 and have variable costs of $125 per set. The fixed costs each year will be $9,800,000. The company has also spent $1,500,000 on research and development for the new TV. The equipment required will cost $35,500,000 and will be depreciated using the 7-year MACRS schedule. The new TVs will also require an increase in net working capital of $1,600,000 that will be returned at the end of the project. The equipment can be sold at the end of seven years for $1,700,000. The tax rate is 26 percent, and the cost of capital is 15 percent.
1. Should the project be accepted?
2. Suppose the price of the new TV could vary by $10, how sensitive is the analysis to changes in the price of the new TV?
3. Suppose in the best-case scenario, the price of the new TV is $750, with variable costs per unit of $300, and units sold of 75,000. In the worst-case scenario the price of the new TV is $675 with variable costs per unit of $375, and units sold of 60,000. What are the NPVs for the best- and worst-case scenarios?
4. Perform a simulation of net cash flows 1 - 7 assuming that the price of the new TV is normally distributed with a mean of $705 and a standard deviation of $15, that the variable costs for the new TV are normally distributed with a mean of $320 and a standard deviation of $10, and that units sold for the new TV are uniformally distributed between 60,000 and 75,000 units per year. Use 10,000 iterations for this simulation.