Suppose a company is about to start the following project, where all the dollar figures are...

 

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Suppose a company is about to start the following project, where all the dollar figures are in thousands of dollars. In year 0, the project requires a fixed cost of $12,000. The fixed costs is depreciated on the straight-line basis over five years, and there is a salvage value of $1,500 in year 5. Fixed cost per year is $1,000. The sales generated in years 1-5 are estimated to be 2,500 units, 3,200 units, 5,100 units, 3,400 units and 1,200 units. The costs of capital in year 1 is forecast to be 8.5% and decreases linearly by 0.2% for years 2 to 5, ending with 7.7% in year 5. The tax rate is forecast to be a constant 35.0%. Sales revenue per unit is forecast to be $8.50. Variable cost per unit is forecast to be $6.30. What is the project NPV? Develop your financial spreadsheet model with frozen panes for detailed calculations and name the worksheet "Project NPV". At the end of year 5, you have the opportunity to continue the project for the next 3 years with additional fixed investment of $7,000 without any salvage value. Assuming all the parameters (sales, cost of capital, tax, variable cost) remain the same as year 5 for the next 3 years. Would you continue the project? Why? A report and the supporting electronic spreadsheet work must be submitted online. The report should contain a summary of your results, brief explanation and justification of your statements and conclusions. Suppose a company is about to start the following project, where all the dollar figures are in thousands of dollars. In year 0, the project requires a fixed cost of $12,000. The fixed costs is depreciated on the straight-line basis over five years, and there is a salvage value of $1,500 in year 5. Fixed cost per year is $1,000. The sales generated in years 1-5 are estimated to be 2,500 units, 3,200 units, 5,100 units, 3,400 units and 1,200 units. The costs of capital in year 1 is forecast to be 8.5% and decreases linearly by 0.2% for years 2 to 5, ending with 7.7% in year 5. The tax rate is forecast to be a constant 35.0%. Sales revenue per unit is forecast to be $8.50. Variable cost per unit is forecast to be $6.30. What is the project NPV? Develop your financial spreadsheet model with frozen panes for detailed calculations and name the worksheet "Project NPV". At the end of year 5, you have the opportunity to continue the project for the next 3 years with additional fixed investment of $7,000 without any salvage value. Assuming all the parameters (sales, cost of capital, tax, variable cost) remain the same as year 5 for the next 3 years. Would you continue the project? Why? A report and the supporting electronic spreadsheet work must be submitted online. The report should contain a summary of your results, brief explanation and justification of your statements and conclusions.