#$3$ and #$4$ follow provided template example for best case, worst case, base case

THE ULTIMATE RETRO GAMING SYSTEM Initial Inputs: A technology firm is considering developing "The Ultimate Retro Gaming System" which will include thousands of games, highlighted by many of the classics from the 1970s, 1980s, and 1990s. This project under consideration costs $500,000, has a five-year life, and has no salvage value. Depreciation is straight-line to zero. The required return is 14%, and the tax rate is 21%. In addition, we have compiled the following information: 9 Aptos Narrow c 1,199,335 B unit sales Price per unit Base Case 40,000 $100 Variable costs per unit $75 Fixed costs per year $150,000 Lower Bound 35,000 $90 $70 $125,000 Upper Bound 45,000 $110 $80 $175,000 899 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 NPV of Project Year Sales New Details: You now have been asked to consider some other inputs. The cost, life of the project, salvage value, straight-line depreciation, required return, and tax rate will remain the same. Now, however, you have been asked to consider the following additional possibilities: 1. Management is concemed that the sales projections may be too optimistic. What happens if all of our models are too high in terms of unit sales? What if actual sales are 25% lower than our models? 2. How would an annual increase in unit sales of 15% or an annual reduction in unit sales of 15% impact our models? (Hint: This is not a one-time change. It is an increase or decrease of 15% each year.) 3. Consider an annual decrease in price per unit in the best case, worst case, and base case of 10% per unit to an increase in price per unit of 10%. (Hint: This is nota one-time change. It is an increase or decrease of each year.) 4. Consider an annual decrease in the variable costs per unit in the best case, worst case, and base case of 10% per unit to an increase in variable costs per unit of 10%. (Hint: This is not a one-time change. It is an increase or decrease of 10% each year.) 5. Consider any other potential changes to the model you may want to run. (This step is optional, but I want to allow for your own creativity.) Develop models in Excel to consider these possibilities outlined above and resulting NPVs. Then, write a brief report (no more than 2-3 pages) describing what you have found. There is no need to highlight every single calculation or model in your written analysis. Focus on the big picture, and highlight the key projections that support your recommendations! What is your advice to management regarding the project? What, if anything, concerns you Variable costs per unit Fixed Cost Depreciation EBIT Taxes Net Income Cash Flow NPV of Project Year Sales Variable costs per unit Fixed Cost Depreciation EBIT Taxes Net Income -500000 -500000 -500000 -500000 Best Case Worst Case 2 2