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
-
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)
-
Assuming that the rate-determining step in the reaction of 1-hexanol with hydrogen bromide to give 1-bromohexane is an attack by a nucleophile on an alkyloxonium ion; write an equation for this step....
-
The insurance company called Cetera is facing the following problem: Whenever there is a major event (e.g., a storm), their claim-to-resolution process is unable to cope with the ensuing spike in...
-
Explain the purpose of the judges charge to the jury.
-
What are the tangible and intangible benefits that Walgreens receives by being a leader in hiring employees with disabilities?
-
Accounts Debit Credit Cash $24,100 Accounts Receivable 5,500 Supplies 3,400 Land 53,000 Accounts Payable $3,500 Common Stock 68,000 Retained Earnings 14,500 Totals $86,000 $86,000 During January...
-
1. Assume that, after a rash of bicycle accidents in several cities nationwide, Congress enacts a federal statute prohibiting the use of bicycle couriers. The statute is intended to protect the...
-
5. Brocks Corporation reports operating expenses in two categories (1) Selling and (2) general and administrative. The adjusted trial balance at December 31, 2020 included the following expenses and...
-
Why is the distinction between classifying something as capital expenditure and classifying it as revenue expenditure so important to the users of financial statements?
-
From Nymans arguments, do all increased expenditures become welfare enhancing? Give examples of some that enhance welfare. Give examples of others that do not.
-
A Black and Blue Ltd depreciates its forklift trucks using a reducing balance rate of 30 per cent. Its accounting year end is 30 September. On 30 September 2013, it owned four forklift trucks: (A)...
-
Explain whether there is any difference between goals in maximizing output for a given cost or minimizing the cost of producing a given level of output.
-
What is the relationship in a regression analysis between Q and P ? Between Q and Y ? Between Q and A ? Now consider questions 1 to 4: Q = Quantity (in 100s) of aspirin purchased in a year P =...
-
Question 6 Use Method of Undetermined Coefficient to solve the boundary value problem of y" - 2y' + 2 = 2e* cosx with the initial conditions of y(0) = 0 and y' (0) = -2. (19 marks)
-
A supermarket chain is interested in exploring the relationship between the sales of its store-brand canned vegetables (y), the amount spent on promotion of the vegetables in local newspapers (x1)...
-
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?
-
Show that the group \(D_{3}\) has two 1D irreps in addition to the 2D irrep found in Problem 5.6 , and construct the character table. Derive the two-dimensional matrix representation Data from...
-
The matrix representation of \(\mathrm{C}_{3 \mathrm{v}}\) given in Eq. (5.14) was constructed with respect to the particular coordinate system defined by the unit vectors \(\boldsymbol{e}_{1}\) and...
-
Prove that the action of the symmetry operations \(\sigma_{b}\) and \(\sigma_{c}\) on the basis vectors \(\boldsymbol{e}_{1}\) and \(\boldsymbol{e}_{2}\) in Fig. 5.10 are given by the matrix...
Study smarter with the SolutionInn App