Question: Urgent answer need please To meet the increased demand for viral testing equipment following the Pandemic, ClearScan, LLC, which designs and manufacturers laboratory testing equipment,
Urgent answer need please
To meet the increased demand for viral testing equipment following the Pandemic, ClearScan, LLC, which designs and manufacturers laboratory testing equipment, is considering a capacityincrease investment project as the company currently operates at full capacity. The expansion requires an initial outlay of $48.5 million that includes $45 million for new equipment expected to last 5 years with zero-book value and $3.5 million for working capital. As a result of the proposed expansion, annual sales are expected to increase by 4,000 unit a year during the project's life. The selling price of each unit is $40,000. Through options and futures contracts, the company plans to keep variable costs per system to 60% of the price. The project requires $12 million/year of fixed cost.
The hurdle rate for the project is 12% per year, and the reinvestment rate of the project's CF is 16%. The Federal-to-state tax rate is 25%.
Required:
a. Calculate NPV, IRR, PI, and MIRR. Should the company accept the project?
b. Use the CCF method to calculate the conventional and discounted payback periods
c. Calculate the breakeven level of production
d. Calculate the zero-NPV level of production
| CLEARSCAN SMR22_MT | ||||||
| INPUTS | ||||||
| WACC | 12% | |||||
| INITIAL OUTLAY | 48,500,000 | |||||
| INVESTED CAPITAL | ||||||
| WORKING CAPITAL | ||||||
| UNITED SOLD | 4,000 | |||||
| PRICE | ||||||
| AVC | ||||||
| FC | ||||||
| DEPRECIATION | ||||||
| TAXRATE | 25% | |||||
| REINVESTMENT RATE | 16% | |||||
| EVENT YEAR | 0 | 1 | 2 | 3 | 4 | 5 |
| CASH FLOWS | ACCEPT/REJECT | |||||
| NET PRESENT VALUE | ACCEPT/REJECT | |||||
| PI | ACCEPT/REJECT | |||||
| IRR | ACCEPT/REJECT | |||||
| MIRR | ||||||
| PLAYBACK PERIOD | ||||||
| CCF | -48,500,000 | |||||
| CONVENTIONAL PAYBACK | ||||||
| DCF | -48,500,000 | |||||
| CDCF | -48,500,000 | |||||
| DISCOUNTED PAYBACK | ||||||
| BREAKEVEN | ||||||
| ZERO-NPV SALES | PV=IO | N | I | FV=WC | PMT=NATCF | |
| 5 | ||||||
| NATDCF | (1-T)(S-TVC-FC-D)+D | |||||
| Q= |
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