Let's return to the proforma income statement we created for Tesla (info given below) that we did in Week 2 and complete the analysis to determine if the project is desirable. Using the EM you constructed in Week 2 and the cost of capital calculations you computed in Week 8 to determine if Johnson & Johnson should Heart Flow Stent. Use the following capital budgeting techniques. 1. Payback period 2. Net present value 3. Internal rate of return Now let's test the sensitivity of the project to some changes in the assumptions. 4. Take the cost of capital you previously computed (in week 8) and add 2% to the value (for example, if WACC was 12%, make it 14%) and recalculate NPV. What happens to IRR? Is the project still desirable? 5. Suppose the cost of goods sold percentage rises by 2.5%. Compute the payback period, NPV and IR. Use the original WACC you computed. .6. How sensitive is NPV to the changes made in 4 and 5? Suppose Johnson & Johnson (ticker symbol - jpj) has decided to introduce a new heart stent, the Heart Flow. Before they launch the Heart Flow, they conducted an analysis to see if the Heart Flow would be a desirable investment. The company estimated that it would sell 250,000 Heart Flow's per year at a price of $75,000 for the next six years. After the rst year of sales, the quantity sold will increase by 2% per year for the remaining life of the project. The initial capital outlay is determined to be $10 billion and a $1.0 billion outlay in net working capital (NWC) would also be required. Assume that there is a one- time investment in NWC and that this will be recovered at the end of the project. Assume that the equipment used will be depreciated using the MACRS 7-year schedule and that the equipment has a salvage value of zero. At the end of year 6, the equipment will be sold for 110% of its book value. Also, assume that that the tax rate is 25%. Using information from Johnson 8.: Johnson's financial statements (you may want to use Morningstar.com or some other online site) estimate the operating cash ows from the project. Make any simplifying assumptions that are necessary to uroduce the estimate. Mcrnin : star has charred their website. The used to " " " " " " "asset" \"CGGS'Aiid'SGK \"teenager; they assesses 'ii." "if" 55611 "ii'd" " " " " " " them, let me know. Use a xed 60% as the SGA percentage. For COGS %, click the tab for \"Operating Performance,\" and compute COGS% = 1 Gross Mar in %. 10 Years Treasury Bond Rate S 3.38% Market Risk Premium = 8.5% [FORMULAS] Cost of Equity (CAPM Method) 8.67% = Risk Free Rate + Beta*Market Risk Premium Percentage of Equity 74% = 1/(1 + Debt Equity Ratio) Percentage of Debt = 26% = Debt-to-Equity Ratio / (1 = 0.35) Cost of Debt = 2.5% Yield on AAA-rated bond WACC = 7% =