Need help on required 1-7.

G 3 Crystal Lake Company is considering launching a product line extension - a "new and improved" version with 4 enhanced product features and enviromentally friendly packaging. Below are the baste assumptions s associated with the new product line extension: 7% 7 Data: 8 Project life 4 Years 9 Cost of equipment $ (1,600,000) 10 Year O Incr. in Inventory $ 50,000 11 Year 1 Incr. in AR S 120,000 12 Year O Incr. in AP 30,000 13 NWC Inreases w/ sales after initial investment 20,000 14 Sales Year 1 1,500,000 Sales increase per year 25 Depreciation $ (400,000) 26 Operating costs 25% of sales -7 G&A allocation from Corporate $ (50,000) 8 Year 1 launch costs $ (75,000) 9 Prior year market research cost $ (60,000) Inflation estimate per year 3% (included in sales) WACC 12% Taxes 21% After tax cash flows cannabilized from existing product line - per year $ Proceeds for salvage value of equipment at end of 4 years $ 50,000 150,000 Questions: 1) Create a cash flow framework by year and then calculate NPV, IRR, Payback, MIRR, PI. 2) Should you launch the line extension? Why? 3) What is the risk associated with this project? How do you measure that risk? Problem Sheet2 Shea C B A 2) Should you launch the line extension? Why? 5 3) What is the risk associated with this project? How do you measure that risk? B 0 4) What do you know for certain about your forecast? How often will project assumptions change? 1 2 13 4 5) What if the sales forecast changes to 10% below the original estimate & the equipment cost is 5 10% higher? 46 47 48 49 6) Are EVA/ROIC metrics appropriate in this case ? 50 51 52 537) How should you handle inflation? 54 55 56 57 58 59 60 61 62 63 64