please show formulas.

AutoSave OFF LRMFchapter 13problem13-18assignment Home Insert Draw Page Layout Formulas Data Review View Tell me X Cut LCopy Arial v 10 A A = = ab Wrap Text Number Paste BIU av Ar = = = Merge & Center v $ v % ) Format Conditional Format Cell Formatting as Table Styles K L M N O G36 x fx A B D E F G H I 5 Webmasters.com has developed a powerful new server that would be used for corporations' Internet activities. It would cost 6 $10 million at Year 0 to buy the equipment necessary to manufacture the server. The project would require net working 7 capital at the beginning of each year in an amount equal to 10% of the year's projected sales; for example, NWC, = 8 10% (Sales). The servers would sell for $24,000 per unit, and Webmasters believes that variable costs would amount to 9 $17,500 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 3%. The company's 10 nonvariable costs would be $1 million at Year 1 and would increase with inflation. 11 12 13 The server project would have a life of 4 years. If the project is undertaken, it must be continued for the entire 4 years. 14 Also, the project's returns are expected to be highly correlated with returns on the firm's other assets. The firm believes it 15 could sell 1,000 units per year. 16 17 18 The equipment would be depreciated over a 5-year period, using MACRS rates. The estimated market value of the equipment at the end of the project's 4-year life is $500,000. Webmasters' federal-plus-state tax rate is 40%. Its cost of 19 capital is 10% for average-risk projects, defined as projects with a coefficient of variation of NPV between 0.8 and 1.2. Low- 20 risk projects are evaluated with a WACC of 8%, and high-risk projects at 13%. 21 22 HINTS: Required level of net operating working capital should = NWCo = 10%(Sales1) 23 Equipment purchases in Time 0 should be a negative 10,000 24 Cash Flow due to change in NOWC in time 0 should equal a negative $2,400 25 Net Cash Flow due to Salvage should equal $991 26 Net Cash Flow (time line) in Year 4 should equal $7,681 27 Use IF stmts. in "Part of Year Required for payback and disct. Payback". View LIL video to learn how! 28 Use Data Tables for Sensitivity part. View suggested 8 min LIL video to learn how! 29 a. Develop a spreadsheet model, and use it to find the project's NPV, IRR, and payback. 31 32 Input Data (in thousands of dollars) 33 Equipment cost $10,000 Key Results: 34 Net operating working capital/Sales 10% NPV 35 First year sales (in units) ) 1.000 IRR = 36 Sales price per unit $24.00 Payback - 37 Variable cost per unit (excl. depr.) $17.50 38 Nonvariable costs (excl. depr.) $1,000 39 Market value of equipment at Year 4 $500 40 Tax rate 40% 41 WACC 10% 42 Inflation in prices and costs 3.0% 43 Estimated salvage value at year 4 $500 44 45 Intermediate Calculations 0 1 2 3 4 46 Units sold 47 Sales price per unit (excl. depr.) 48 Variable costs per unit (excl. depr.) 49 Nonvariable costs (excl. depr.) 50 Sales revenue 51 Required level of net operating working capital 52 Basis for depreciation $10,000 53 Annual equipment depr. rate 20.00% 32.00% 19.20% 11.52% 54 Annual depreciation expense 55 Ending Bk Val: Cost - Accum Dep'rn $10,000 56 Salvage value $500 57 Profit (or loss) on salvage 58 Tax on profit (or loss) 59 Net cash flow due to salvage 60 Years Worth 35 points. Years 61 Cash Flow Forecast 0 1 2 3 4 62 Sales revenue 63 Variable costs 64 Nonvariable operating costs 65 Depreciation (equipment) 66 Oper. income before taxes (EBIT) 67 Taxes on operating income (40%) 68 Net operating profit after taxes 69 Add back depreciation 70 Equipment purchases 71 Cash flow due to change in NOWC 72 Net cash flow due to salvage 73 Net Cash Flow (Time line of cash flows) 74 75 Key Results: Appraisal of the Proposed Project 76 77 Net Present Value (at 10%) = 78 IRR = 79 MIRR = 80 Payback 81 Discounted Payback = For Help in using nesting IF/THEN Statements in "Part of year required for payback and discounted payback", 82 please watch this 4 min, 44 sec. video called, "Excel: Advanced Formulas and Functions Create and Expand the use 83 of nested IF Statements; Dennis Taylor https://www.linkedin.com/learning-login/share?forceAccount=false&redirect=https%3A%2F%2Fwww.linkedin.com%2Flearning%2Fexcel- advanced-formulas-and-functions%3Ftrk%3Dshare ent url%26shareld%3D7a364603-a226-4fa5-8254- 84 065c8b0791eb&account=26106634 85 Data for Payback Years Years 86 0 1 2 3 4 87 Net cash flow 88 Cumulative CF 89 Part of year required for payback 90 91 92 Data for Discounted Payback Years Years 93 0 1 2 3 4 94 Net cash flow 95 Discounted cash flow 96 Cumulative CF 97 Part of year required for discounted payback 98 99 100 101 b. Now conduct a sensitivity analysis to determine the sensitivity of NPV to changes in the sales price, variable costs per 102 unit, and number of units sold. Set these variables' values at 10% and 20% above and below their base-case values. Worth 15 points. 101 b. Now conduct a sensitivity analysis to determine the sensitivity of NPV to changes in the sales price, variable costs per 102 unit, and number of units sold. Set these variables' values at 10% and 20% above and below their base-case values. 103 Please watch this brief instructional video on how to use data tables. Video is called, "Automated DataTables"; Chris Dutton 8 min 6 sec. long. 104 https://www.linkedin.com/learning-login/share?forceAccount=false&redirect=https%3A%2F%2Fwww.linkedin.com%2Flearning%2Fexcel- 105 analytics-tips%3Ftrk%3Dshare ent url%26shareld%3D77ed42db-ae1e-4e 12-8ef4-18e340675f3a&account=26106634 106 107 % Deviation SALES PRICE 108 from Note about data tables. The data in the column input should NOT Base NPV 109 be input using a cell reference to the column input cell. For Base Case $24.00 example, the base case Sales Price in Cell B95 should be the number 110 -20% 111 $24.00 you should NOT have the formula =D28 in that cell. This is -10% 112 because you'll use D28 as the column input cell in the data table and 0% if Excel tries to iteratively replace Cell D28 with the formula =D28 113 10% 114 20% rather than a series of numbers, Excel will calculate the wrong 115 answer. Unfortunately, Excel won't tell you that there is a problem, 116 so you'll just get the wrong values for the data table! 117 118 % Deviation VARIABLE COST % Deviation 1st YEAR UNIT SALES 119 from Base NPV from Base NPV 120 Base Case $17.50 Base Case 1,000 121 -20% -20% 122 -10% -10% 123 0% 0% 124 10% 10% 125 20% 20% 126 127 128 Cancel Worth 5 points. 129 c. Now conduct a scenario analysis. Assume that there is a 25% probability that best-case conditions, with each of the 130 variables discussed in Part b being 20% better than its base-case value, will occur. There is a 25% probability of worst-case 131 conditions, with the variables 20% worse than base, and a 50% probability of base-case conditions. 132 133 134 135 Sales Unit Variable 136 Scenario Probability Price Sales Costs NPV 137 138 Best Case 25% $28.80 1,200 $14.00 $25,435 $ 139 Base Case 50% $24.00 1,000 $17.50 $3,463 140 Worst Case 25% $19.20 800 $21.00 ($11,990) 141 142 Expected NPV = 143 Standard Deviation = $13,332 144 Coefficient of Variation = Std Dev / Expected NPV = 145 146 Worth 5 points. Worth 5 points. 147 d. If the project appears to be more or less risky than an average project, find its risk-adjusted NPV, IRR, and payback. 148 149 CV range of firm's average-risk project: 0.8 to 1.2 150 Low-risk WACC = 8% 151 WACC = 10% 152 High-risk WACC = 13% 153 153 154 Risk-adjusted WACC = 465 155 Risk adjusted NPV = 156 IRR = 157 157 158 159 e. On the basis of information in the problem, would you recommend that the project be accepted? 160 161 162 163 464 164 ME 165 166 10- 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 AutoSave OFF LRMFchapter 13problem13-18assignment Home Insert Draw Page Layout Formulas Data Review View Tell me X Cut LCopy Arial v 10 A A = = ab Wrap Text Number Paste BIU av Ar = = = Merge & Center v $ v % ) Format Conditional Format Cell Formatting as Table Styles K L M N O G36 x fx A B D E F G H I 5 Webmasters.com has developed a powerful new server that would be used for corporations' Internet activities. It would cost 6 $10 million at Year 0 to buy the equipment necessary to manufacture the server. The project would require net working 7 capital at the beginning of each year in an amount equal to 10% of the year's projected sales; for example, NWC, = 8 10% (Sales). The servers would sell for $24,000 per unit, and Webmasters believes that variable costs would amount to 9 $17,500 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 3%. The company's 10 nonvariable costs would be $1 million at Year 1 and would increase with inflation. 11 12 13 The server project would have a life of 4 years. If the project is undertaken, it must be continued for the entire 4 years. 14 Also, the project's returns are expected to be highly correlated with returns on the firm's other assets. The firm believes it 15 could sell 1,000 units per year. 16 17 18 The equipment would be depreciated over a 5-year period, using MACRS rates. The estimated market value of the equipment at the end of the project's 4-year life is $500,000. Webmasters' federal-plus-state tax rate is 40%. Its cost of 19 capital is 10% for average-risk projects, defined as projects with a coefficient of variation of NPV between 0.8 and 1.2. Low- 20 risk projects are evaluated with a WACC of 8%, and high-risk projects at 13%. 21 22 HINTS: Required level of net operating working capital should = NWCo = 10%(Sales1) 23 Equipment purchases in Time 0 should be a negative 10,000 24 Cash Flow due to change in NOWC in time 0 should equal a negative $2,400 25 Net Cash Flow due to Salvage should equal $991 26 Net Cash Flow (time line) in Year 4 should equal $7,681 27 Use IF stmts. in "Part of Year Required for payback and disct. Payback". View LIL video to learn how! 28 Use Data Tables for Sensitivity part. View suggested 8 min LIL video to learn how! 29 a. Develop a spreadsheet model, and use it to find the project's NPV, IRR, and payback. 31 32 Input Data (in thousands of dollars) 33 Equipment cost $10,000 Key Results: 34 Net operating working capital/Sales 10% NPV 35 First year sales (in units) ) 1.000 IRR = 36 Sales price per unit $24.00 Payback - 37 Variable cost per unit (excl. depr.) $17.50 38 Nonvariable costs (excl. depr.) $1,000 39 Market value of equipment at Year 4 $500 40 Tax rate 40% 41 WACC 10% 42 Inflation in prices and costs 3.0% 43 Estimated salvage value at year 4 $500 44 45 Intermediate Calculations 0 1 2 3 4 46 Units sold 47 Sales price per unit (excl. depr.) 48 Variable costs per unit (excl. depr.) 49 Nonvariable costs (excl. depr.) 50 Sales revenue 51 Required level of net operating working capital 52 Basis for depreciation $10,000 53 Annual equipment depr. rate 20.00% 32.00% 19.20% 11.52% 54 Annual depreciation expense 55 Ending Bk Val: Cost - Accum Dep'rn $10,000 56 Salvage value $500 57 Profit (or loss) on salvage 58 Tax on profit (or loss) 59 Net cash flow due to salvage 60 Years Worth 35 points. Years 61 Cash Flow Forecast 0 1 2 3 4 62 Sales revenue 63 Variable costs 64 Nonvariable operating costs 65 Depreciation (equipment) 66 Oper. income before taxes (EBIT) 67 Taxes on operating income (40%) 68 Net operating profit after taxes 69 Add back depreciation 70 Equipment purchases 71 Cash flow due to change in NOWC 72 Net cash flow due to salvage 73 Net Cash Flow (Time line of cash flows) 74 75 Key Results: Appraisal of the Proposed Project 76 77 Net Present Value (at 10%) = 78 IRR = 79 MIRR = 80 Payback 81 Discounted Payback = For Help in using nesting IF/THEN Statements in "Part of year required for payback and discounted payback", 82 please watch this 4 min, 44 sec. video called, "Excel: Advanced Formulas and Functions Create and Expand the use 83 of nested IF Statements; Dennis Taylor https://www.linkedin.com/learning-login/share?forceAccount=false&redirect=https%3A%2F%2Fwww.linkedin.com%2Flearning%2Fexcel- advanced-formulas-and-functions%3Ftrk%3Dshare ent url%26shareld%3D7a364603-a226-4fa5-8254- 84 065c8b0791eb&account=26106634 85 Data for Payback Years Years 86 0 1 2 3 4 87 Net cash flow 88 Cumulative CF 89 Part of year required for payback 90 91 92 Data for Discounted Payback Years Years 93 0 1 2 3 4 94 Net cash flow 95 Discounted cash flow 96 Cumulative CF 97 Part of year required for discounted payback 98 99 100 101 b. Now conduct a sensitivity analysis to determine the sensitivity of NPV to changes in the sales price, variable costs per 102 unit, and number of units sold. Set these variables' values at 10% and 20% above and below their base-case values. Worth 15 points. 101 b. Now conduct a sensitivity analysis to determine the sensitivity of NPV to changes in the sales price, variable costs per 102 unit, and number of units sold. Set these variables' values at 10% and 20% above and below their base-case values. 103 Please watch this brief instructional video on how to use data tables. Video is called, "Automated DataTables"; Chris Dutton 8 min 6 sec. long. 104 https://www.linkedin.com/learning-login/share?forceAccount=false&redirect=https%3A%2F%2Fwww.linkedin.com%2Flearning%2Fexcel- 105 analytics-tips%3Ftrk%3Dshare ent url%26shareld%3D77ed42db-ae1e-4e 12-8ef4-18e340675f3a&account=26106634 106 107 % Deviation SALES PRICE 108 from Note about data tables. The data in the column input should NOT Base NPV 109 be input using a cell reference to the column input cell. For Base Case $24.00 example, the base case Sales Price in Cell B95 should be the number 110 -20% 111 $24.00 you should NOT have the formula =D28 in that cell. This is -10% 112 because you'll use D28 as the column input cell in the data table and 0% if Excel tries to iteratively replace Cell D28 with the formula =D28 113 10% 114 20% rather than a series of numbers, Excel will calculate the wrong 115 answer. Unfortunately, Excel won't tell you that there is a problem, 116 so you'll just get the wrong values for the data table! 117 118 % Deviation VARIABLE COST % Deviation 1st YEAR UNIT SALES 119 from Base NPV from Base NPV 120 Base Case $17.50 Base Case 1,000 121 -20% -20% 122 -10% -10% 123 0% 0% 124 10% 10% 125 20% 20% 126 127 128 Cancel Worth 5 points. 129 c. Now conduct a scenario analysis. Assume that there is a 25% probability that best-case conditions, with each of the 130 variables discussed in Part b being 20% better than its base-case value, will occur. There is a 25% probability of worst-case 131 conditions, with the variables 20% worse than base, and a 50% probability of base-case conditions. 132 133 134 135 Sales Unit Variable 136 Scenario Probability Price Sales Costs NPV 137 138 Best Case 25% $28.80 1,200 $14.00 $25,435 $ 139 Base Case 50% $24.00 1,000 $17.50 $3,463 140 Worst Case 25% $19.20 800 $21.00 ($11,990) 141 142 Expected NPV = 143 Standard Deviation = $13,332 144 Coefficient of Variation = Std Dev / Expected NPV = 145 146 Worth 5 points. Worth 5 points. 147 d. If the project appears to be more or less risky than an average project, find its risk-adjusted NPV, IRR, and payback. 148 149 CV range of firm's average-risk project: 0.8 to 1.2 150 Low-risk WACC = 8% 151 WACC = 10% 152 High-risk WACC = 13% 153 153 154 Risk-adjusted WACC = 465 155 Risk adjusted NPV = 156 IRR = 157 157 158 159 e. On the basis of information in the problem, would you recommend that the project be accepted? 160 161 162 163 464 164 ME 165 166 10- 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185