The managers of Favourite Fish are considering a new project in which they would purchase equipment to produce canned sardines. You are to perform capital budgeting computations relating to this project a spreadsheet template developed to analyze the Favourite Fish decision is available at www.wiley.com/canada/ eldenburg. Notice that the first part of the spreadsheet computes the NPV of a project, given the information from the input box at the top of the spreadsheet. The lower portion of the spreadsheet computes the price necessary for the project to have an NPV of zero. You will manipulate the data in the data entry box as you alter the underlying assumptions of the analysis. For example, you can change the discount rate but leave all the other information as it is in the original template. Each time you begin a new analysis, you should return to the original template values.
REQUIRED
A. What is the NPV of the project if the discount rate is 15%?
B. What is the NPV of the project if the tax rate goes down to 30%?
C. What is the NPV if the cost of the equipment increases to $120,000?
D. What is the minimum price that must be charged to make this project acceptable, given that 10,000 cases must be sold?
E. What is the NPV of the project if 12,000 cases are sold at $5.50 per case and variable costs remain unchanged?
F. What is the NPV of the project if variable costs increase to $2.75?
G. What is the NPV of the project if variable costs increase to $2.75 and the marginal tax rate declines to 30%?
H. What is the NPV of the project if variable costs increase to $2.75, the marginal tax rate declines to 30%, and the marginal discount rate is 24%?
I. What is the minimum price that Favourite Fish must charge to make this project acceptable if the marginal tax rate becomes 50%?
J. What is the minimum price to make the project acceptable if only 9,000 cases are sold?
K. What is the minimum price if 8,000 cases are sold, the discount rate is 14%, and the tax rate is 30%?
L. To help managers perform sensitivity analysis, it is useful to gather information about competitors' prices, current and future economic factors, and any other relevant information. Where could you find information that would help you or a manager decide on the values to use for this type of sensitivity analysis?