D E F H 5 Webmaster.com has developed a powerful new server that would be used for corporation Internet activities. It would cost $10 6 million at Year to buy the equipment necessary to manufacture the wrver. The project would require betwerking capital at the 7 beginning of each year is an amount equal to 10% of the year's projected sales, for example, NWC, -10%{Sales. The res 8 9 would sell for $24,000 per unit, and Websters believes that variable costs would amount to 517.500 per unit. After Year 1, the 10 sale price and variable costs will increase at the Inflation rate of 3%. The company's ovariable costs would be $1 million at 11 Year 1 and would increase with inflation 12 13 The server project would have a life of 4 years. If the project is undertaken, it must be continued for the retire 4 years. Also, 14 the project's returns are expected to be highly correlated with retures on the firm's others. The firm believe it could sell 15 1.000 units per year. 16 17 The equipment would be depreciated over 5-year period, using MACRS rates. The estimated market value of the equipment 18 at the end of the project's 4-year life is $500,000. Webmasters' federal-plus-state tax rate is 60%. Is cost of capital is 10% for 19 average-risk projects, defined as projects with a coefficient of variation of NPV between 0.8 od 1.2. Low-risk projects are 20 evaluated with a WACC 68%, and high-risk projects at 13% 21 22 Estimated the project cash flow and then find the project's NPV 5500 105 10% 3.046 Actu'd Depen 24 25 Part 1. Input Dats (is thousands of dollars) 26 27 Equipment cost $10,000 28 Net WC/Sales 10% Market value of equipment at Year 29 First year sales (in units) 1.000 Turale 30 Sales price per unit 524.00 WACC 31 Variable cost per unit $17.50 Inflation 32 Nonvariable costs $1,000 33 34 Part 2 Depreciation and Amortization Schedule Years SS Year Initial Cost 2 36 37 Equipment Depr'n Rate 20.01 19.046 38 Equipment Depr'n, Delian $2.000 $3.200 39 Ending Bk Val: Cost - Accum Depirn 40 41 Part 3. Net Salvare Values, is Year Equipment 42 Estimated Market Value in Year 4 43 Book Value in Year 4 44 Expected Gain or Loss 45. Taxes paid or tax credit 46 Net cash flow from sale 47 48 Part 4. Projected Net Cash Flows (Timeline of Annual Cash Flows) 49 Years 50 Insula Time Zere 51 Equipment 53 Operatin Cash Flower the Proper's Life 54 Laits sold 55 Sales price Build a Model - Ready D E F H 5 Webmaster.com has developed a powerful new server that would be used for corporation Internet activities. It would cost $10 6 million at Year to buy the equipment necessary to manufacture the wrver. The project would require betwerking capital at the 7 beginning of each year is an amount equal to 10% of the year's projected sales, for example, NWC, -10%{Sales. The res 8 9 would sell for $24,000 per unit, and Websters believes that variable costs would amount to 517.500 per unit. After Year 1, the 10 sale price and variable costs will increase at the Inflation rate of 3%. The company's ovariable costs would be $1 million at 11 Year 1 and would increase with inflation 12 13 The server project would have a life of 4 years. If the project is undertaken, it must be continued for the retire 4 years. Also, 14 the project's returns are expected to be highly correlated with retures on the firm's others. The firm believe it could sell 15 1.000 units per year. 16 17 The equipment would be depreciated over 5-year period, using MACRS rates. The estimated market value of the equipment 18 at the end of the project's 4-year life is $500,000. Webmasters' federal-plus-state tax rate is 60%. Is cost of capital is 10% for 19 average-risk projects, defined as projects with a coefficient of variation of NPV between 0.8 od 1.2. Low-risk projects are 20 evaluated with a WACC 68%, and high-risk projects at 13% 21 22 Estimated the project cash flow and then find the project's NPV 5500 105 10% 3.046 Actu'd Depen 24 25 Part 1. Input Dats (is thousands of dollars) 26 27 Equipment cost $10,000 28 Net WC/Sales 10% Market value of equipment at Year 29 First year sales (in units) 1.000 Turale 30 Sales price per unit 524.00 WACC 31 Variable cost per unit $17.50 Inflation 32 Nonvariable costs $1,000 33 34 Part 2 Depreciation and Amortization Schedule Years SS Year Initial Cost 2 36 37 Equipment Depr'n Rate 20.01 19.046 38 Equipment Depr'n, Delian $2.000 $3.200 39 Ending Bk Val: Cost - Accum Depirn 40 41 Part 3. Net Salvare Values, is Year Equipment 42 Estimated Market Value in Year 4 43 Book Value in Year 4 44 Expected Gain or Loss 45. Taxes paid or tax credit 46 Net cash flow from sale 47 48 Part 4. Projected Net Cash Flows (Timeline of Annual Cash Flows) 49 Years 50 Insula Time Zere 51 Equipment 53 Operatin Cash Flower the Proper's Life 54 Laits sold 55 Sales price Build a Model - Ready