Quick Computing currently sells 10 million computer chips each year at a price o
ID: 2709132 • Letter: Q
Question
Quick Computing currently sells 10 million computer chips each year at a price of $20 per chip. It is about to introduce a new chip, and it forecasts annual sales of 12 million of these improved chips at a price of $25 each. However, demand for the old chip will decrease, and sales of the old chip are expected to fall to 3 million per year. The old chip costs $6 each to manufacture, and the new ones will cost $8 each. What is the proper cash flow to use to evaluate the present value of the introduction of the new chip? (Enter your answer in millions.)
Quick Computing currently sells 10 million computer chips each year at a price of $20 per chip. It is about to introduce a new chip, and it forecasts annual sales of 12 million of these improved chips at a price of $25 each. However, demand for the old chip will decrease, and sales of the old chip are expected to fall to 3 million per year. The old chip costs $6 each to manufacture, and the new ones will cost $8 each. What is the proper cash flow to use to evaluate the present value of the introduction of the new chip? (Enter your answer in millions.)
Explanation / Answer
Net Cash Flow is 246 million
Current Situation New Situation Old Chip Old Chip New Chip Total Number of units sold ( in millions) (A) 10 3 12 15 Price per unit( in $ ) ( B) 20 20 25 Revenue ( in millions) '(C) = A- B 200 60 300 360 Cost per unit( in $) (D) 6 6 8 Total Cost (in millions) E = A*D 60 18 96 114 Net Income / Net Cash Flow ( in millions) C- E 140 42 204 246 Net Cash Flow in the new situation is 246 millions , hence the company should incorporate the new chip as it increases the profitability and the cash position of the companyRelated Questions
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