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For a new product, sales volume in the first year is estimated to be 100,000 units and is projected to grow at a rate of 7% per year. The selling price is $10 and wil increase by $0.50 each year. Per-unit variable costs are $3, and annual fixed costs are $200,000. Per-unit costs are expected to increase 5% per year. Fixed costs are expected to increase 10% per year. Develop a spreadsheet model to calculate the net present value of profit over a 3-year period, assuming a 7% discount rate.

Explanation / Answer

Year Sales in units Sales (per unit @$10) Variable Cost @$3 per unit Fixed Costs Profit Present Value factor@7% Present Value of Profit 1 100000 1000000 300000 200000 500000 0.936 468000.00 2 107000 1070000 321000 220000 529000 0.873 461817.00 3 114490 1144900 343470 242000 559430 0.816 456494.88 1386311.88

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