Case Scenario: You are the engineering representative on a team for a new product introduction. The proposed manufacturing process uses a semi-automated machine along with people.
Problem 1: What average selling price of the finished product would be required to yield a 20% After-Tax rate of return (After-Tax IRR)?
Problem 2: How does the variation in After-Tax MARR impact After-Tax Net Present Value (ATNPV)? (To answer this question, calculate After-Tax Net Present Value for different values of After-Tax MARR (ATMARR) ranging from 0% to 25% (considering raw material cost per unit is $8 and selling price is $10.5 per unit) and plot After-Tax Net Present Value vs. MARR).
ATMARR 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25%
ATNPV
Problem 3: Is the After-Tax Net Present Value (ATNPV) more sensitive to changes in raw material cost or changes in selling price? To answer this question, follow the steps below:
a. Considering selling price per unit as $10.50 and After-Tax MARR as 12%, calculate After-Tax Net Present Value (ATNPV) for raw material cost ranging from $4/unit to $12/unit. Then , plot After-Tax Net Present Value vs. raw material cost.
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Raw Material Cost/Unit
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4
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4.5
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5
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5.5
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6
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6.5
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7
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7.5
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8
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9
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9
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9.5
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10
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10.5
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11
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11.5
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12
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ATNPV
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b. Considering raw material cost per unit as $8 and After-Tax MARR as 12%, calculate After-Tax Net Present Value (ATNPV) for selling price ranging from $4/unit to $12/unit. Then , plot After-Tax Net Present Value vs. selling price.
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Selling Price/Unit
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4
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4.5
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5
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5.5
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6
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6.5
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7
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7.5
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8
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9
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9
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9.5
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10
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10.5
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11
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11.5
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12
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ATNPV
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c. Find the slope of line in both plots (of a and b) and compare the absolute value of the slopes.
Problem 4: If variability of selling price per unit (consider current selling price is $10.50 per unit) may range from -15% to +15% (i.e. selling price per unit cannot decrease by less than 15% of the current selling price and cannot increase by more than 15% of the current selling price) and variability of raw material cost per unit (consider raw material cost per unit as $8) may range from -15% to +15%, find After-Tax Net Present Value (ATNPV) for simultaneous change in selling price and raw material cost to fill the table below (consider After-Tax MARR is 12%):
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ATNPV
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Selling Price
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-15%
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-10%
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-5%
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0%
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5%
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10%
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15%
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-15%
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-10%
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Raw Material Cost
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-5%
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0%
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5%
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10%
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15%
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Problem 5: If required Annual production volume is Y units, raw material cost per unit is $8, selling price is $10.5 per unit and After-Tax MARR is 12%, what is the value of Y at which After-Tax Net Present Value (ATNPV) is 0?
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Attachment:- Case Study Spring.rar