Assumptions (Amounts in $ Thousands Unless Otherwise Indicated)

Initial Capital Expenditure = 9,000,000

Useful Life of Equipment

Annual Depreciation

Sales in Year 1 = 30,000,000

Sales Growth through Year 6 = 6%

Sales Growth Year 6 Onward = 2%

Free Cash Flow Year 6 Onward

Cost of Goods Sold (% of sales) = 72%

Incremental SG&A Expense = 6,000,000

Market Research Expense = 500,000

Initial Net Working Capital = 6,000,000

Accounts Receivable % of Next Year Sales = 15%

Inventory % of Next Year COGS = 20%

Accounts Payable % of Next Year COGS = 15%

Interest Expense = 1,000,000

Tax Rate = 20%

Cost of Capital = 20%

Scenario Analysis

Sales Growth through Year 6 % Cost of Goods Sold NPV Scenario 1 (Baseline) 5% 71% ?

Scenario 2 6% 72% ?

Scenario 3 8% 73% ?

Scenario 4 9% 74% ?

Question: Which scenario generates the highest NPV? (fill in the blanks highlighted in yellow) Answer: