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Question 63: Cannondale is considering a modification to one of their products. The change will have...

Question 63: Cannondale is considering a modification to one of their products. The change will have an immediate cost to Cannondale of $50,000, but is expected to raise revenues by $40,000 next year and $45,000 the year after that. The increase in manufacturing costs due to this change are expected be $5,000 per year. These numbers are approximate (after-tax), and no forecasting is done beyond the second year. Cannondale typically requires a rate of return of 10%. What is the NET present value (PV) of this change, considering only the next two years?

  1. $0.00
  2. $14,876.03
  3. $33,057.85
  4. $114,876.03
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Answer #1

Solution :

The NET present value (PV) of this change, considering only the next two years is = $ 14,876.03

Thus the solution is Option B. $ 14,876.03

Please find the attached screenshot of the excel sheet containing the detailed calculation for the above solution.

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