Plastic Technologies Inc. has developed a 3D printer that is significantly more precise than existing 3D printers on the market. The company spent $1,000,000 on Research & Development for this product and a further $200,000 for assessing market demand. It would cost $10 million at Year 0 to buy the equipment necessary to manufacture the 3D printer. The project would require net working capital at the beginning of each year equal to 10% of sales (NOWC0 = 10%(Sales1), NOWC1 = 10%(Sales2), etc.). The 3D printers would sell for $6,000 per unit, and Plastic Technologies believes that variable costs would amount to $1,500 per unit. The company expects that the sales price and variable costs would increase at the inflation rate of 3% after year 1. The company's non-variable costs would be $500,000 in Year 1 and are expected to increase with inflation. The 3D printer project would have a life of 4 years. If the project is undertaken, it must be continued for the entire 4 years. Also, the project's returns are expected to be highly correlated with returns on the firm's other assets. The firm believes it could sell 1,000 units per year. The equipment would be depreciated using a CCA rate of 30%. The estimated market value of the equipment at the end of the project's 4-year life is its undepreciated capital cost (i.e. book value) at the end of year 4. Plastic Technologies has other assets in this asset class. Plastic Technologies Inc.'s WACC is 10% and the federal-plus-provincial tax rate is 35%. Assume that the half-year rule applies to the CCA.

a. Develop a spreadsheet model and use it to find the project's NPV, IRR, and payback.

Part 1. Input Data (in thousands of dollars except for unit amount)

Part 2. CCA Schedule

Part 3. Projected Net Cash Flows (Time line of annual cash flows)

Part 4. Key Output: Appraisal of the Proposed Project

b. Now conduct a sensitivity analysis to determine the sensitivity of NPV to changes in the sales price, variable costs per unit, and number of units sold. Set these variables' values at 10% and 25% above and below their base case values. Include a graph in your analysis.

I. Sensitivity of NPV to Changes in Inputs. Here we use an Excel "Data Table" to find NPV for different unit sales, variable costs, WACC, and sales prices, holding other thing constant.
% Deviation	1st YEAR UNIT SALES		% Deviation	WACC
from	Units	NPV		from		NPV
Base Case	Sold	$0		Base Case	WACC	0
-25%	750	$0		-25%	7.50%	$0
-10%	900	$0		-10%	9.00%	$0
0%	1,000	$0		0%	10.00%	$0
10%	1,100	$0		10%	11.00%	$0
25%	1,250	$0		25%	12.50%	$0
% Deviation	VARIABLE COSTS		% Deviation	SALES PRICE
from	Variable	NPV		from	Sales	NPV
Base Case	Costs	$0		Base Case	Price	$0
-25%	1.13	$0		-25%	4.50	$0
-10%	1.35	$0		-10%	5.40	$0
0%	$1.50	$0		0%	$6.00	$0
10%	1.65	$0		10%	6.60	$0
25%	1.88	$0		25%	7.50	$0
from	Fixed	NPV
Base Case	Costs	$0
-25%	375	$0
-10%	450	$0
0%	$500	$0
10%	550	$0
25%	625	$0

Deviation	NPV at Different Deviations from Base
from	Sales Price	Variable		Non-variable
Base Case		Cost	Units Sold	Cost	WACC
-25%	$0	$0	$0	$0	$0
-10%	$0	$0	$0	$0	$0
0%	$0	$0	$0	$0	$0
10%	$0	$0	$0	$0	$0
25%	$0	$0	$0	$0	$0
Range	$ -	$ -	0	$ -	$ -

c. Would you recommend that the project be accepted? Explain.