Question: Please answer in Excel and show all the work Management is considering a new project - manufacturing stationary bikes. They have two options - a)

Please answer in Excel and show all the work

Please answer in Excel and show all the work Management is considering

Management is considering a new project - manufacturing stationary bikes. They have two options - a) manufacture in-house; b) outsource the manufacturing. The bike can be sold for $1,200 (in either case). Marketing team expects that the number of bikes that will be sold first year is 20,000 . After, the CASH FLOW is expected to grow at 5%. If the bike is manufactured in-house, manufacturing facility will be built and equipment will be purchased for a total outlay of $40,000,000. Fixed costs are expected to be $5,000,000. Variable costs will also be incurred. The manufacturing facility and the equipment will be depreciated over 25 years to zero. The project will be viable for 5 years and 5 years you expect to salvage factory and equipment for $30,000,000. Applicable tax rate is 21%. You also expect that whatever cash flow you estimate in year 1 , it will grow at 5% every year. If the bike is outsourced, there will be no initial outlay. The variable cost per bike will be $1,080 while the fixed costs will be $1,500,000. The tax rate again is 21%. You also expect that whatever cash flow you estimate in year 1 , it will grow at 5% every year. Required rate of return on projects is 15%. At what variable cost per bike if the bike is manufactured in-house, should the management be indifferent between the projects based on NPV analysis (hint: find NPV of outsourcing the bike, then use GoalSeek). In other words, what is the variable cost per bike that makes NPV of in-house project equal the NPV of outsourcing manufacturing

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