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omework: Chapter 10 Homework Save ore: 0.5 of 1 pt 1 of 6 (4 complete) HW Score: 41.67%, 2.5 of 6 pt. EP10-1 (similar to) Question Help Erosion costs. Fat Tire Bicycle Company currently sells 35,000 bicycles per year. The current bike is a standard balloon-tire bike selling for $100, with a production and shipping cost of $30. The company is thinking of introducing an off-road bike with a projected selling price of $375 and a production and shipping cost of $300 The projected annual sales for the off-road bike are 15,000. The company will lose sales in fat-fire bikes of 9,000 units per year if it introduces the new bike, however. What is the erosion cost from the new bike? Should Fat Tire start producing the off-road bike? What is the erosion cost from the new bike? (Round to the nearest dollar.) -1 (similar to) Question He o: View an Example ng ste 10 Question Help he Erosion costs. Fat Tire Bicycle Company currently sells 40,000 bicycles per year. The current bike is a standard balloon-tire bike selling for $90, with a production and shipping cost of $35. The company is thinking of introducing an off-road bike with a projected Dun selling price of $410 and a production and shipping cost of $360. The projected annual sales for the off-road bike are 12,000. The company will lose sales in fat-tire bikes of 8,000 units per year if it introduces the new bike, however. What is the erosion cost from the new bike? Should Fat Tire start producing the off-road bike? The erosion cost can be found by subtracting the production and shipping cost from the selling price and multiplying the result by the lost sales as a result of the new product: erosion cost = (price - production and shipping cost)x lost sales in units = ($90 - $35)x 8,000 - $440,000 Follow the steps below to determine whether Fat Tire should start producing the off-road bike: Step1: Calculate the net annual cash flow (NACF) with the standard bike. NACF with standard bike = (price-production and shipping cost) x sales in units = ($90 - $35) 40,000 = $2,200,000 Step 2: Calculate the NACF with both the standard bike and the new off-road bike. Be sure to account for the erosion of sales of the standard bike that will result because of the introduction of the new off-road bike. 2 Press Continue to see more. Continue Close your parts maininn Question Help on coi View an Example hipping irodu projecte $ $30 is the how! Question Help t is the Erosion costs. Fat Tire Bicycle Company currently sells 40,000 bicycles per year. The current bike is a standard balloon-tire bike selling for $90, with a production and shipping cost of $35. The company is thinking of introducing an off-road bike with a projected (Roun selling price of $410 and a production and shipping cost of $360. The projected annual sales for the off-road bike are 12,000. The company will lose sales in fat-tire bikes of 8,000 units per year if it introduces the new bike, however. What is the erosion cost from the new bike? Should Fat Tire start producing the off-road bike? -09-30) AOUUU - 3440, VVN Follow the steps below to determine whether Fat Tire should start producing the off-road bike: Step1: Calculate the net annual cash flow (NACF) with the standard bike. NACF with standard bike = (price - production and shipping cost) x sales in units = ($90 - $35) 40,000 = $2,200,000 Step 2: Calculate the NACF with both the standard bike and the new off-road bike. Be sure to account for the erosion of sales of the standard bike that will result because of the introduction of the new off-road bike. NACF with both bikes = (NACF with standard bike - erosion cost) + (price of off-road bike - production and shipping cost of off-road bike)x sales of off-road bike = ($2,200,000 - $440,000) + (5410 - $360) x 12,000 - $2,360,000 Press Continue to see more. Continue Close Enter your 2 parts remaining 0-1 (similar to) Question Help View an Example X oping jecte the roduct 3f $300 howe the Roun Question Help Erosion costs. Fat Tire Bicycle Company currently sells 40,000 bicycles per year. The current bike is a standard balloon-tire bike selling for $90, with a production and shipping cost of $35. The company is thinking of introducing an off-road bike with a projected selling price of $410 and a production and shipping cost of $360. The projected annual sales for the off-road bike are 12,000. The company will lose sales in fat-tire bikes of 8,000 units per year if it introduces the new bike, however. What is the erosion cost from the new bike? Should Fat Tire start producing the off-road bike? NACF with standard bike = (price - production and shipping cost) x sales in units = ($90 - $35) 40,000 = $2,200,000 Step 2: Calculate the NACF with both the standard bike and the new off-road bike. Be sure to account for the erosion of sales of the standard bike that will result because of the introduction of the new off-road bike. NACF with both bikes = (NACF with standard bike - erosion cost) + (price of off-road bike - production and shipping cost of off-road bike)x sales of off-road bike = ($2,200,000 - $440,000) + ($410 - $360) 12,000 = $2,360,000 Step 3: Calculate the incremental net annual cash flow, assuming the introduction of the new off-road bike Incremental NACF = NACF with both bikes - NACF with standard bike - $2,360,000 - $2,200,000 = $160,000 Press Continue to see more. Continue Close er your 1 part remaining P10-1 (similar to) Question Help View an Example Erosion coi and shipping The projecte What is the rodus of $30 how What is the (Roun Question Help Erosion costs. Fat Tire Bicycle Company currently sells 40,000 bicycles per year. The current bike is a standard balloon-tire bike selling for $90, with a production and shipping cost of $35. The company is thinking of introducing an off-road bike with a projected selling price of $410 and a production and shipping cost of $360. The projected annual sales for the off-road bike are 12,000. The company will lose sales in fat-tire bikes of 8,000 units per year if it introduces the new bike, however. What is the erosion cost from the new bike? Should Fat Tire start producing the off-road biko? =(390 335) x 40,000 $4,200,000 Step 2: Calculate the NACF with both the standard bike and the new off-road bike. Be sure to account for the erosion of tales of the standard bike that will result because of the introduction of the new off-road bike. NACF with both bikes = (NACF with standard bike - erosion cost) + (price of off-road bike - production and shipping cost of off-road bike) sales of off-road bike = ($2,200,000 - $440,000) + (5410 - $360) x 12,000 - $2,360,000 Step 3: Calculate the incremental net annual cash flow, assuming the introduction of the new off-road bike. incremental NACF = NACF with both bikes - NACF with standard bike = $2,360,000 - $2,200,000 = $160,000 If the incremental annual cash flow is positive, as a result of introducing the off-road bike, then the bike should be introduced. Thus, the off-road bike should be manufactured because it contributes an additional $160,000 Question is complete. Close

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