Problem:
Cannondale is considering a modification to one of their products. The change will have an immediate cost to Cannondale of $50,000, but is expected to raise revenues by $40,000 next year and $45,000 the year after that.
The increase in manufacturing costs due to this change are expected be $5,000 per year. These numbers are approximate (after-tax), and no forecasting is done beyond the second year. Cannondale typically requires a rate of return of 10%. What is the NET present value (PV) of this change, considering only the next two years?
a. $0.00
b. $33,057.85
c. $14,876.03
d. $114,876.03