1. You will decide on a new project with a 5-year life and following data; • You expect sales as $10,000 in the first year of operation but the sales in subsequent years are uncertain. Estimated sales growth is assumed to be normally distributed with a mean of 3% and a standard deviation of 2%. Costs of goods Sold (COGS) each year are uncertain as well but are assumed to be a percentage of sales. COGS as a percentage of sales is assumed to be distributed normally with a mean of 40% and a standard deviation of 6%. • Fixed costs will be $3,300 per year. • The project will require an initial investment in net working capital of $400. Beginning at year 1, NWC is 10% of sales. The entire NWC investment (across all years) will be recovered at the end of the project. • To operate the project, a new piece of equipment must be purchased at a cost of $10,000. The equipment will be depreciated using straight line depreciation. • The equipment will have 0 salvage value by the end of the project. • The cost of capital facing the firm is 10%. • Tax rate is 25% Mean Std Dev Sales Growth 3% 2% COGS/Sales 40% 6% Fixed Cost $3,300 NWC as % of Sales 10% Tax Rate 25% Cost of Capital 10%

Tasks: a) Calculate the NPV of the project while capturing the uncertainty in sales and costs of goods sold.

b) Simulate the NPV 1000 times using a data table.

c) Calculate mean, standard deviation, min and max values for projected NPVs

d) Calculate the probability of positive NPV

Can you include formulas in excel? I don't know what more information you would need because this is all the info we are given

Answer rating: 100% (QA)

a The NPV of the project is 10000 This is because the sales in the first year are expected to be 10000 and the costs of goods sold are expected to be 4000 40 of 10000 The fixed costs are 3300 and the ... View the full answer