Hello, I need help with the following question. Please post answers step-by-step. Thank you!

Your CEO has asked you to evaluate launching a new product line for your company. Based on your experience and knowledge of the market, you have estimated the following results for the first five (5) years of the Project.

Expected Revenues

Year ('000s)

1: $80

2: $120

3: $200

4: 320

5: 480

The company yearly purchases COGS from suppliers = 50% of the forecasted sales.

General and administrative expenses (wages, taxes, office etc.) are estimated at 15% of sales.

Sales salaries and commissions are estimated to be 10% of sales.

The project requires an initial equipment investment of $150,000

Annual depreciation expense of the equipment is $30,000

Annual interest expense on the money borrowed to pay for the equipment is $6,000

The company tax rate is 35%

Q1. a. Using the above projections and the template in Appendix A, build a Pro-forma Income Statement for each year of the project.

b. In the template below the Income Statement, calculate the operating cash flows and total cash flows for each year.

Q2. Using your initial investment and total cash flows from Q1, calculate the following for the project:

a. Net Present Value

b. Payback (Breakeven)

c. Discounted Payback (Breakeven)

d. Internal Rate of Return

e. Profitability Index

The company can borrow at 5% for the initial price of the equipment.

Q3. Based on Q1 and Q2, and the following management benchmarks, comment on whether the company should move forward with the project.

Management Benchmark:

a. NPV Positive

b. Payback (Breakeven) < 4 years

c. Discounted Payback (Breakeven) < 4 years

d. IRR > 20%

e. Profitability Index > 1

Appendix A - Proforma Income Statement

Years

0 1 2 3 4 5

Revenues:

COGS

Gross Profit

Expenses:

Sales, Salaries & Commissions

General & Admin Expenses

Depreciation Expense

Total Operating Expenses

EBIT

Interest

EBT

Less Taxes (35%)

Net Income

Operating Cash Flow

Initial Investment

Total Cash Flows