Mikes Bike Co. currently sells 11 million bike tires each year at a price of $17 per tire. It is about to introduce a new tire, and it forecasts annual sales of 17 million of these improved tires at a price of $23 each. However, demand for the old tire will decrease, and sales of the old tire are expected to fall to 4 million per year (note, this says "fall TO 4 million per year," not "fall BY."). The old tire costs $6 each to manufacture, and the new ones will cost $9 each. What is the proper cash flow to use to evaluate the present value of the introduction of the new tire? (Hint: Realized cash inflows from new tire sales minus unrealized cash inflows from old tire sales.)

Mikes Bike Co. currently sells 11 million bike tires each year at a price of $17 per tire. It is about to introduce a new tire, and it forecasts annual sales of 17 million of these improved tires at a price of $23 each. However, demand for the old tire will decrease, and sales of the old tire are expected to fall to 4 million per year (note, this says "fall TO 4 million per year," not "fall BY."). The old tire costs $6 each to manufacture, and the new ones will cost $9 each. What is the proper cash flow to use to evaluate the present value of the introduction of the new tire? (Hint: Realized cash inflows from new tire sales minus unrealized cash inflows from old tire sales.)

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications

Section: Chapter Questions

Problem 30P

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