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1. For a new product, sales volume in the first year is estimated to be 50,000...

1. For a new product, sales volume in the first year is estimated to be 50,000 units and is projected to grow at a rate of 7% per year. The selling price is $100 and will increase by $10 each year. Per-unit variable costs are $22 and annual fixed costs are $1,000,000. Per-unit costs are expected to increase 4% per year. Fixed costs are expected to increase 10% per year. Develop a spreadsheet model to predict the net present value of profit over a three-year period, assuming a 4% discount rate.

How to solve this question on excel, please show formulas as well. :)

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Answer #1
Net present Value of Profit
Particulars Year 1 Year 2 Year 3
No. of Units 50000 53500 57245
Selling Price / unit $100 $110 $120
Less: Variable Cost / unit $22 $22.88 $23.80
Contribution / Unit $78 $87 $96
Contribution $3,900,000 $4,660,920 $5,507,244
Fixed Cost $1,000,000 $1,100,000 $1,210,000
Net Profit $2,900,000 $3,560,920 $4,297,244
Present value factor= 1/(1+0.04)^n 0.961538462 0.924556213 0.888996359
Net present value of Profit $2,788,461.54 $3,292,270.71 $3,820,234.07
Total Present Value of Profit $9,900,966.32
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