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. :)
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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