Longshot Company has the opportunity to manufacture and sell a novelty third brake light for automobiles....

  

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Longshot Company has the opportunity to manufacture and sell a novelty third brake light for automobiles. Producing the light requires an Initial investment of $500,000 in manufacturing equipment, which depreciates over a five year time period toward a $50,000 salvage value, plus an investment of $20,000 in net operating working capital. The discount rate used to analyre the project cash flows is 10 per cent (N). This rate k the opportunity cost of investing in the proposed investment and should reflect the risk of the investment. Other important information describing the investment opportunity is summarized as follows: Initial cost of equipment Project and equipment ife Salvage value of equipment Working capital requirement Depreciation method Depreciation expense Discount Tax rate (5500,000 5 years $50,000 $20,000 Straight- Line S 90,000) 10% 30% Longhot Company's management estimates that it can sell 15,000 units per year for the next five years and expects to sell them for $200 each. Longshot Company's management team has identified four key value drivers for the project : unit sales, price per unit, variable cost per unit, and cash fixed ost fied costs other than depreciation ) per year. The expected values for the value drivers, along with corresponding estimates for best-and worst-case scenarios, are summarized as follows: TLE Expected or base case Worst cas Best case Unit sales 15.000 12,500 18.000 Price per unit Variable cost per unit Fed cash cost per $220 180 250 $150 160 130 $285,000 S285,000 $285,000 year Depreciation expense $90.000 $90,000 $90.000 Required: Calculate the Cash Flows for the project, showing the yearly cash flows for each of the three scenarios. (42 marks) 2 Calculate the Net Present Value for the project. (6 marks) Show and present the answers Using the blank Excel Spreadsheet given. You may alter and amend any necessary line items in the spreadsheet ( add ines etd (6 marks) Longshot Company has the opportunity to manufacture and sell a novelty third brake light for automobiles. Producing the light requires an Initial investment of $500,000 in manufacturing equipment, which depreciates over a five year time period toward a $50,000 salvage value, plus an investment of $20,000 in net operating working capital. The discount rate used to analyre the project cash flows is 10 per cent (N). This rate k the opportunity cost of investing in the proposed investment and should reflect the risk of the investment. Other important information describing the investment opportunity is summarized as follows: Initial cost of equipment Project and equipment ife Salvage value of equipment Working capital requirement Depreciation method Depreciation expense Discount Tax rate (5500,000 5 years $50,000 $20,000 Straight- Line S 90,000) 10% 30% Longhot Company's management estimates that it can sell 15,000 units per year for the next five years and expects to sell them for $200 each. Longshot Company's management team has identified four key value drivers for the project : unit sales, price per unit, variable cost per unit, and cash fixed ost fied costs other than depreciation ) per year. The expected values for the value drivers, along with corresponding estimates for best-and worst-case scenarios, are summarized as follows: TLE Expected or base case Worst cas Best case Unit sales 15.000 12,500 18.000 Price per unit Variable cost per unit Fed cash cost per $220 180 250 $150 160 130 $285,000 S285,000 $285,000 year Depreciation expense $90.000 $90,000 $90.000 Required: Calculate the Cash Flows for the project, showing the yearly cash flows for each of the three scenarios. (42 marks) 2 Calculate the Net Present Value for the project. (6 marks) Show and present the answers Using the blank Excel Spreadsheet given. You may alter and amend any necessary line items in the spreadsheet ( add ines etd (6 marks)

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