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  3. 4. the expected profits of a new product depend la

4. The expected profits of a new product depend largely on the sales volume, and...

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4. The expected profits of a new product depend largely on the sales volume, and there is some uncertainty about the precision of the sales-forecast figures. The estimated investment is $173,000, while the anticipated profits are $49,500 per year for the next 6 years. The company's minimum attractive rate of return (MARR) is 15%, and it is estimated that in the worst case the profits will be reduced to $40,000 per year. (a) [10 points What is the NPW for an annual profit of $49,500? Is the investment attractive? (b) [10 points] What is the NPW for an annual profit of $40,000? Is the investment attractive? (c) [10 points) Is the decision to invest sensitive to the uncertainty of the sales forecast? (d) [10 points) If the probability to have an annual profit of $49,500 is 75%, while the probability to have an annual profit of $40,000 is 25%, what is the expected NPW? Is this investment attractive? (e) [10 points) If there is a profit of $6.70 per unit volume, what is the minimum annual volume of sales for the project to breakeven? (Hint: Let annual volume of sales be x, then annual profit is $6.70x.)

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