1. Perform a sensitivity analysis on each of the key variables listed below, assuming they can...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
1. Perform a sensitivity analysis on each of the key variables listed below, assuming they can each vary from their base-case or expected value by 10 percent. unit sales growth rate in unit sales sales price per unit variable cost per unit fixed costs growth rate in sales price per unit growth rate in variable cost per unit growth rate in fixed costs expected salvage value tax rate cost of capital (hurdle rate) working capital as percentage of total revenues Which variables appear to have the most impact on the net present value of the project? Column3 Equipment cost Economic life Salvage value Tax rate Cost of capital Units sold Sales growth rate Sales price per unit Sales price growth rate Variable cost per unit Variable cost growth rate Fixed costs Fixed cost growth rate Net working capital / Sales Annual operating cash flows Unit sales (rounded down) Unit price (rounded) Unit variable cost (rounded) Total revenues Less: Total variable costs Less: Total fixed costs Less: Depreciation Earnings before interest and taxes Less: Taxes @ 25.00% NOPAT Add back depreciation Net operating cash flows Depreciation expense Cash Flows for Net Working Capital Total revenues NWC 15% of total revenues CF due to investment in NWC Salvage Value Cash from salvage value Less: Book value Gain (loss) on asset disposal Tax on salvage value gain (loss) Net cash flow from salvage Projected Net Cash Flows Investment in capital assets Operating cash flows Cash flows for net working capital Salvage cash flows Net cash flows NPV = IRR = Column1 $1,000,000 5 $100,000 Uniform 25.00% 10.00% 20,000 Normal 3.00% Triangular $50 4.00% Normal $25 5.00% Traingular $200,000 2.00% Uniform 15.00% Year 0 $150,000 ($150,000) ($1,000,000) Column2 ($150.000) ($1,150,000) $173,344 15.03% Year 1 20,000 $50.00 $25.00 200.000 $100,000 25.000 $75,000 200.000 $275,000 20.00% Year 2 $200,000 20,600 $52.00 $26.25 $1,000,000 $1,071,200 $1,147,469 $1,229,069 500,000 540,750 584,768 200,000 204,000 208,080 320.000 $6,450 1.613 $4,838 320.000 $324,838 32.00% $320,000 Year 3 21,218 $54.08 $27.56 $1,000,000 $160,680 $172,120 ($10,680) ($11,440) 192.000 $162,621 40.655 $121,966 192.000 $313,966 Year 4 19.20% $192,000 21,854 $56.24 $28.94 632,455 212,242 115.200 $269,173 67.293 $201,879 115.200 $317,079 11.52% $115,200 Year 5 $275,000 $324,838 $313,966 $317,079 ($10.680) ($11.440) ($12.240) ($13,122) $264,320 $313,397 $301,726 $303,957 22,509 $58.49 $30.39 $1,316,551 684,049 216,486 115.200 $300,816 75.204 $225,612 115.200 $340,812 $1,071,200 $1,147,469 $1,229,069 $1,316,551 $197,483 $184,360 ($12,240) ($13,122) $197,483 11.52% $115,200 $100,000 57.600 $42,400 10.600 $89,400 $340,812 $197,483 $89.400 $627,695 $100,000 - $10,600 1. Perform a sensitivity analysis on each of the key variables listed below, assuming they can each vary from their base-case or expected value by 10 percent. unit sales growth rate in unit sales sales price per unit variable cost per unit fixed costs growth rate in sales price per unit growth rate in variable cost per unit growth rate in fixed costs expected salvage value tax rate cost of capital (hurdle rate) working capital as percentage of total revenues Which variables appear to have the most impact on the net present value of the project? Column3 Equipment cost Economic life Salvage value Tax rate Cost of capital Units sold Sales growth rate Sales price per unit Sales price growth rate Variable cost per unit Variable cost growth rate Fixed costs Fixed cost growth rate Net working capital / Sales Annual operating cash flows Unit sales (rounded down) Unit price (rounded) Unit variable cost (rounded) Total revenues Less: Total variable costs Less: Total fixed costs Less: Depreciation Earnings before interest and taxes Less: Taxes @ 25.00% NOPAT Add back depreciation Net operating cash flows Depreciation expense Cash Flows for Net Working Capital Total revenues NWC 15% of total revenues CF due to investment in NWC Salvage Value Cash from salvage value Less: Book value Gain (loss) on asset disposal Tax on salvage value gain (loss) Net cash flow from salvage Projected Net Cash Flows Investment in capital assets Operating cash flows Cash flows for net working capital Salvage cash flows Net cash flows NPV = IRR = Column1 $1,000,000 5 $100,000 Uniform 25.00% 10.00% 20,000 Normal 3.00% Triangular $50 4.00% Normal $25 5.00% Traingular $200,000 2.00% Uniform 15.00% Year 0 $150,000 ($150,000) ($1,000,000) Column2 ($150.000) ($1,150,000) $173,344 15.03% Year 1 20,000 $50.00 $25.00 200.000 $100,000 25.000 $75,000 200.000 $275,000 20.00% Year 2 $200,000 20,600 $52.00 $26.25 $1,000,000 $1,071,200 $1,147,469 $1,229,069 500,000 540,750 584,768 200,000 204,000 208,080 320.000 $6,450 1.613 $4,838 320.000 $324,838 32.00% $320,000 Year 3 21,218 $54.08 $27.56 $1,000,000 $160,680 $172,120 ($10,680) ($11,440) 192.000 $162,621 40.655 $121,966 192.000 $313,966 Year 4 19.20% $192,000 21,854 $56.24 $28.94 632,455 212,242 115.200 $269,173 67.293 $201,879 115.200 $317,079 11.52% $115,200 Year 5 $275,000 $324,838 $313,966 $317,079 ($10.680) ($11.440) ($12.240) ($13,122) $264,320 $313,397 $301,726 $303,957 22,509 $58.49 $30.39 $1,316,551 684,049 216,486 115.200 $300,816 75.204 $225,612 115.200 $340,812 $1,071,200 $1,147,469 $1,229,069 $1,316,551 $197,483 $184,360 ($12,240) ($13,122) $197,483 11.52% $115,200 $100,000 57.600 $42,400 10.600 $89,400 $340,812 $197,483 $89.400 $627,695 $100,000 - $10,600
Expert Answer:
Answer rating: 100% (QA)
Here are the key variables that appear to have the most impact on the NPV of the project based on 10 ... View the full answer
Related Book For
Essentials of Managerial Finance
ISBN: 978-0324422702
14th edition
Authors: Scott Besley, Eugene F. Brigham
Posted Date:
Students also viewed these finance questions
-
What was the cost of raw materials used in production? How much of the materials in ( 1 ) above consisted of indirect materials? How much of the factory labor cost is indirect labor? What was the...
-
Allied Food Products is considering expanding into the fruit juice business with a new fresh lemon juice product. Assume that you were recently hired as assistant to the director of capital budgeting...
-
Shrieves Casting Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by Sidney Johnson, a recently graduated MBA. The production line...
-
Calculate the standard entropy change for the following reactions at 25C. Comment on the sign of r S. (a) 2 Al(s) + 3 Cl 2 (g) 2 AlCl 3 (s) (b) 2 CH 3 OH() + 3 O 2 (g) 2 CO 2 (g) + 4 H 2 O(g)
-
Apply the term structure of interest rate theories that were discussed in Chapter 3 to explain the shape of the existing commercial paper yield curve.
-
(a) Based on what you know about the relative stabilities of alkyl cations and benzylic cations, predict the product of addition of HBr to 1-phenylpropene. (b) Propose a mechanism for this reaction....
-
Explain the different ways that a summons may be served on individuals.
-
Sally and Charles Heck received the following Form 1099-DIV in 2018: The Hecks also received the following dividends and interest in 2018 (Forms 1099-DIV not shown): Assuming the Hecks file a joint...
-
Baxdy Corporation was established two years ago to "mine" and sell rapidly expanding and has provided the trial balance below as at Dec 31, 2023. BAXDY CORPORATION TRIAL BALANCE AS AT DEC 31, 2023...
-
In the book Foundations of Financial Management ( 7th ed.), Stanley B. Block and Geoffrey A. Hirt discuss risk measurement for investments. Block and Hirt present an investment with the possible...
-
Federal Commissioner of Taxation v. The Myer Emporium Ltd., High Court of Australia (Full Court), 14 May 1987 Your team is to research and write an academic paper on the above case and its effect on...
-
Consider the above topology figure, with each link cost (as standard for RIP) is 1. Assume that initially the routing is converged (everything is calculated correctly) and no link is failed. 1.1....
-
Write down the dynamic programming recursion that characterizes the optimal behavior of an unemployed worker. Be specific about he assumptions you are making in writing this recursion (and justify...
-
On cold day the air outside temperature is 0 degrees Celsius and the ground under the house is 1 0 Celsius. The optimal inside temperature for little pig habitation is 2 0 Celsius. Pig Number 2 has...
-
The following financial data is an extract from the website of yahoo.com.hk in respect to the financial ratios of a manufacturing company listed in Hong Kong. The market price for the company in this...
-
For the production facility that KMU company will establish on Ankara road, 250 thousand liras in the first year, 200 thousand liras in the second year, plans to spend 180 thousand liras each year...
-
Saddleback Company makes camping lanterns using a single production process. All direct materials are added at the beginning of the manufacturing process. Information for the month of March follows:...
-
The cost curve for the city water supply is C(Q) = 16 + 1/4 Q2, where Q is the amount of water supplied and C(Q) is the cost of providing Q acre-feet of water. (An acre-foot is the amount of water...
-
What impact does a compensating balance requirement have on the cost of borrowing from a bank if the firm generally holds little or no checking balances at the bank? What would the impact be if the...
-
Van Auken Lumbers 2009 income statement is shown here: Sales........................................................................ $36,000 Cost of goods...
-
How do financial intermediaries in the United States differ from their counterparts in other countries? Why are they different?
-
The partnership of King. Queen, \&- Page has experienced operating losses for three consecutive years. The partners-who have shared profits and losses in the ratio of King, \(15 \%\) : Queen, \(60...
-
ABACUS is a partnership owned by Allen, Bacon, and Cush, who share profits and losses in the ratio of \(1: 3: 4\). The account balances of the partnership at June 30 follow. Requirements 1. Prepare...
-
On June 30, Allie Hayes and Mandy McKay formed a partnership. The women agree to invest equal amounts of capital. Hayes invests her proprietorship's assets and liabilities (credit balances in...
Study smarter with the SolutionInn App