Assumptions and Predictions
Price per unit $ 4,895
Market share (%) 15.00%
Market size (year 1) 200,000 units
Growth rate in market size beginning in year 2 5.0%
Unit variable cost $ 4,250
Fixed cost $9,000,000
Tax rate 50.0%
Cost of capital 18.00%
Investment in net working capital 5.00% of the predicted change in firm revenue
Initial investment in PPE $7,000,000
Annual depreciation (5-year life with no salvage) $1,400,000
Exhibit P3-7.1 TitMar Motor Company PTV Project
a. If the firm's market share turns out to be only 5%, what happens to the project's NPV and IRR?
b. If the market share remains at 15% and the price of the PTV falls to $4,500, what is the resulting NPV?
PROBLEM 3-4: TitMar Motor Company
Given
Assumptions and Predictions Estimates
Price per unit 4.895
Market share (%) 15.00%
Market size (Year 1) 200,000 units
Growth rate in market size beginning in Year 2 5.00%
Unit variable cost 4,250
Fixed cost 9.000.000
Tax rate 50.00%
Cost of capital 18.00%
Investment in NWC 5.00% of the predicted change in firm revenues.
Initial investment in PP&E 7,000,000
Depreciation (5 vear life w/no salvage) 1.400.000
a. If the market share is only 5% then the project's NPV=
b. If market share = 15% and the price of the PTV falls to $4.500 the NPV =