Project analysis $($Pset $4)$

Your job: Determine whether HP should produce a high$-$end smartphone. The project lasts $6$ years.

Investments

$$30$ million in year $0$ for machinery. Assume straight$-$line depreciation over $6$ years

Machinery will be sold for $$2\mathrm{.}5$ million at the project's end

NWC of $$3$ million to begin the project, which will increase at a $4\%$ rate each year

Revenue and cost estimates.

$$50$ million in year $1,$ growing at $10\%$ yearly after

Annual operating costs of $($a$)$ $$30$ million fixed, and $($b$)$ variable costs of $30\%$ of annual revenues

Tax rate $=30\%,$ Discount rate $=12\%$

$\backslash$table$[[$discount rate,$0\mathrm{.}12],[$Tax$,0\mathrm{.}3],[$Revenue growth,$0\mathrm{.}1],[$variable costs,$0\mathrm{.}3],[$Depreciation$,],[$NWC growth,$0\mathrm{.}04]]$

Revenue

coss$($fixed$)$

COGS$($variable$)$

Deprecistion

EBIT

NOPLAT

NWC

Change in NWC

CAPEX

Depreciation

Book Value

Salvage value

After Tax sale gains

FCF

PV

NPV