Assume that everything is the same for the project except the marginal tax rate is now 35%. What is the new NPV?

Assume that the cost per unit can be decreased to $12 by using cheaper raw materials to produce the shelves. As news of the lower quality shelves spreads, we also expect that units sold will decrease by 7% per year. All other assumptions remain the same. What is the new NPV?

 

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unit growth price per unit cost of sales per unit Selling, General & Admin. expense initial investment salvage value useful life Annual Depreciation tax rate discount rate Year Assumptions units Sales Cost of sales Gross Profit Selling, General & Admin. Depreciation EBIT Income Tax Unlevered Net Income Add Back Depreciation Subtract Change in NWC Subtract Capital Expenditure Free Cash Flow Discount Factor FCF Present Value NPV Year Level of NWC Change in NWC Cash Flow Impact of NWC 20,000 incremental overhead 200,000 0% Blue numbers indicate the assumptions 25 15 0 - 40,000 Assume straight-line depreciation 30% 15.0% 5 0 (10,000) (200,000) (210,000) 1 2 4 10,000 10,000 10,000 10,000 250,000 250,000 250,000 250,000 150,000 150,000 150,000 150,000 100,000 100,000 100,000 100,000 20,000 20,000 20,000 20,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 12,000 12,000 12,000 12,000 28,000 28,000 28,000 28,000 40,000 40,000 40,000 40,000 (5,000) (2,000) 2,000 5,000 10,000 10,000 (10,000) 63,000 66,000 (210,000) 54,783 21,232 >0, so accept the project 27 70,000 1 15,000 17,000 5,000 2,000 (5,000) (2,000) 0.869565217 0.7561437 0.6575162 0.5717532 0.4971767 49,905 46,026 41,738 38,780 73,000 3 15,000 (2,000) 2,000 5 10,000 250,000 150,000 100,000 20,000 40,000 40,000 12,000 28,000 40,000 10,000 78,000 4 10,000 (5,000) (10,000) 5,000 10,000 5 0 NWC at year 5 = 0 becau 0 (netting acr 0 (netting acr

Answer rating: 100% (QA)

To calculate the new NPV we ll consider both scenarios 1 a marginal tax rate of 35 and 2 a cost per unit of 12 and a 7 decrease in units sold per year View the full answer