forecasts annual ef1of these mproved chips ot a price of $39 each However, deman

Question

forecasts annual ef1of these mproved chips ot a price of $39 each However, demand for the old chip will decrease and sales of the old chip are expected to fall to 1 million per year. The old chips cost $16 each to manufacture, and the new ones will cost $10 each. What is the proper cash flow to use to evaluate the present value of the introduction of the new chip? (Enter your Quick Computing currently sells 11 million computer chips each year at a price of $31 per chip. It is about to introduce a new chip, and it answer in millions) Cash flow milion

Explanation / Answer

Gross revenues from new chip = 21m * 39 = $819 million

Cost of new chip = 21 million * 10 = $210 million

Lost sales of old chip = 10 million * $31 = $310 million

Saved costs of old chip = 10 million * $16 = $160 million

Increase in cash flow = (819 - 210) - (310 - 160) = $459 million

Cashflow = 459 million

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