1. Net Present Value: The Lees are considering adding a new piece of equipment that will speed up th

1. Net Present Value: The Lees are considering adding a new piece of equipment that will speed up the process of building the bobble heads. The cost of the piece of equipment is $42,000. It is expected that the new piece of equipment will lead to cash flows of $17,000, $29,000, and $40,000 over the next 3 years. If the appropriate discount rate is 12%, what is the NPV of this investment? Explain the findings.2. Budget Preparation: The Lees believe that there production could quadruple in one month after being on Shark Tank. They want to be prepared for this. Based on the monthly budget calculated above, create a new monthly budget for quadrupled production. Assume that 70 units were produced in the first budget and 280 units will be produced per month with the new budget.3. Incremental Analysis: If production does increase dramatically after their presentation on Shark Tank, the Lees will need more space for production. They have two options. Option 1 is to rent out a spacious warehouse nearby. If they pursue this option, there rent will be $1,200 per month and utilities are estimated to cost an additional $350 per month. Their second option, Option 2, is to rent a smaller storefront space that is also nearby. The storefront rent is $1350 per month. However, utilities will likely only cost an additional $150 per month. They want to compare their options over one year’s time (since each rental contract is a 1 year commitment). What is the incremental analysis if the Lees choose Option 1 over Option 2?

 

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