Consider Blooper's mining project Suppose that by investing an additional $3,000,000 initially, Blooper could reduce variable costs to 25% of sales.Use Spreadsheet 10.1 a. Find the incremental NPV for the increased investment. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. Enter your answer in thousands.) b. At what level of sales will accounting profits be unchanged if the firm makes the new investment? Assume the equipment receives the same straight-line depreciation treatment as in the original example. (Hint: Focus on the project's incremental effects on fixed and variable costs.) (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. Enter your answer in thousands.) c. What is the NPV break-even point in total sales if the firm invests in the new equipment? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. Enter your answer in thousands.) d. If the Blooper project operates at accounting break-even, will net present value be positive or negative? Incremental NPV . Sales revenue thousand b. NPV break-even thousand C. If the Blooper project operates at accounting break-even, will net present value be positive or negative? d. c D G |A. Inputs Initial investment ($ thousands) Salvage value ($ thousands) Initial revenues ($ thousands) Variable costs (% of revenues) Initial fixed costs ($ thousands) Inflation rate (%) 1 15.000 2.000 4 15.000 40,0% 5 4.000 5,0% 12,0% 16,7% 7 Discount rate (%) Receivables (% of sales) 9 Inventory (% of next year's costs) Tax rate (%) 15,0% 10 21,0% 11 12. 13 Year: 1 2 4 6 B. Fixed assets 14 Investments in fixed assets 15 15.000 Sales of fixed assets 16 1.580 Cash flow from fixed assets 17 -15.000 1.580 18 C. Operating cash flow 19 15.000 20 Revenues 15.750 16.538 17.364 18.233 Variable expenses 6.000 7.293 21 6.300 6.615 6.946 Fixed expenses 4.000 22 4.200 4.410 4.631 4.862 23 Depreciation Pretax profit 3.000 3.000 3.000 3.000 3.000 24 2.000 2.250 2.513 2.788 3.078 420 25 ax 473 528 586 646 Profit after tax 1.778 2.203 26 1.580 1.985 2.431 Operating cash flow 4,580 27 4.778 4.985 5.203 5.431 28 D. Working capital Working capital Change in working capital Cash flow from investment in working capital 29 1.500 4.075 30 4.279 4.493 4.717 3.039 0 214 31 1.500 2.575 204 225 -1.679 -3.039 32 -2.575 -1.500 -204 -214 -225 1.679 3.039 33 0,408 0,408 0,408 0,408 0,250 E. Project valuation Total project cash flow 34 4,574 35 -16.500 2.005 4.771 4.978 7.110 4.619 Discount factor 1,000 36 0,893 0,797 0,712 0,636 0,567 0,507 PV of cash flow 37 -16.500 1.790 3.646 3.396 3.164 4.034 2.340 Net present value 1.870,1 38 39 LO F. LO Consider Blooper's mining project Suppose that by investing an additional $3,000,000 initially, Blooper could reduce variable costs to 25% of sales.Use Spreadsheet 10.1 a. Find the incremental NPV for the increased investment. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. Enter your answer in thousands.) b. At what level of sales will accounting profits be unchanged if the firm makes the new investment? Assume the equipment receives the same straight-line depreciation treatment as in the original example. (Hint: Focus on the project's incremental effects on fixed and variable costs.) (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. Enter your answer in thousands.) c. What is the NPV break-even point in total sales if the firm invests in the new equipment? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. Enter your answer in thousands.) d. If the Blooper project operates at accounting break-even, will net present value be positive or negative? Incremental NPV . Sales revenue thousand b. NPV break-even thousand C. If the Blooper project operates at accounting break-even, will net present value be positive or negative? d. c D G |A. Inputs Initial investment ($ thousands) Salvage value ($ thousands) Initial revenues ($ thousands) Variable costs (% of revenues) Initial fixed costs ($ thousands) Inflation rate (%) 1 15.000 2.000 4 15.000 40,0% 5 4.000 5,0% 12,0% 16,7% 7 Discount rate (%) Receivables (% of sales) 9 Inventory (% of next year's costs) Tax rate (%) 15,0% 10 21,0% 11 12. 13 Year: 1 2 4 6 B. Fixed assets 14 Investments in fixed assets 15 15.000 Sales of fixed assets 16 1.580 Cash flow from fixed assets 17 -15.000 1.580 18 C. Operating cash flow 19 15.000 20 Revenues 15.750 16.538 17.364 18.233 Variable expenses 6.000 7.293 21 6.300 6.615 6.946 Fixed expenses 4.000 22 4.200 4.410 4.631 4.862 23 Depreciation Pretax profit 3.000 3.000 3.000 3.000 3.000 24 2.000 2.250 2.513 2.788 3.078 420 25 ax 473 528 586 646 Profit after tax 1.778 2.203 26 1.580 1.985 2.431 Operating cash flow 4,580 27 4.778 4.985 5.203 5.431 28 D. Working capital Working capital Change in working capital Cash flow from investment in working capital 29 1.500 4.075 30 4.279 4.493 4.717 3.039 0 214 31 1.500 2.575 204 225 -1.679 -3.039 32 -2.575 -1.500 -204 -214 -225 1.679 3.039 33 0,408 0,408 0,408 0,408 0,250 E. Project valuation Total project cash flow 34 4,574 35 -16.500 2.005 4.771 4.978 7.110 4.619 Discount factor 1,000 36 0,893 0,797 0,712 0,636 0,567 0,507 PV of cash flow 37 -16.500 1.790 3.646 3.396 3.164 4.034 2.340 Net present value 1.870,1 38 39 LO F. LO