activities. It would cost $11 million at Year O to buy the equipment necessary to manufacture the server. The project would require net working capital at the beginning of each year in an amount equal to 12% of the year's projected sales; for example, NWCO = 12%(Sales1). The servers would sell for $25,500 per unit, and Webmasters believes that variable costs would amount to $18,000 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 4%. The company's nonvariable costs would be $2 million at Year 1 and would increase with inflation. The server project would have a life of 4 years. If the project is undertaken, it must be continued for the entire 4 years. Also, the project's returns are expected to be highly correlated with returns on the firm's other assets. The firm believes it could sell 900 units per year. The equipment would be depreciated over a 5-year period, using MACRS rates. The estimated market value of the equipment at the end of the project's 4-year life is $400,000. Webmasters.com's federal-plus-state tax rate is 25%. Its cost of capital is 10% for average-risk projects, defined as projects with a coefficient of variation of NPV between 0.8 and 1.2. Low-risk projects are evaluated with a 7% project cost of capital and high-risk projects at 13%. The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. a. Develop a spreadsheet model, and use it to find the project's NPV, IRR, and payback. Round your answer for the NPV to the nearest dollar and for the IRR and payback to two decimal places. NPV IRR % Regular payback period years b. Now conduct a sensitivity analysis to determine the sensitivity of NPV to changes in the sales price, variable costs per unit, and number of units sold. Set these variables' values at 10% and 20% above and below their base-case values. Round your answers to the nearest dollar. Use a minus sign to enter a negative value, if any. % Deviation from Base Case NPV with Variables at Different Deviations from Base Sales Price Variable Cost per Unit Number of Units Sold $ $ -20% $ -10% $ $ $ 0% $ $ $ 10% $ $ $ $ 20% $ $ c. Now conduct a scenario analysis. Assume that there is a 30% probability that best-case conditions, with each of the variables discussed in Part b being 20% better than its base-case value, will occur. There is a 30% probability of worst-case conditions, with the variables 20% worse than base, and a 40% probability of base-case conditions. Round your answers for the NPV and standard deviation to the nearest dollar and for the coefficient of variation to two decimal places. Use a minus sign to enter a negative value, if any. Scenario NPV Best Case $ Base Case $ tA A Worst Case $ Expected NPV $ Standard Deviation $ Coefficient of Variation d. If the project appears to be more or less risky than an average project, find its risk-adjusted NPV, IRR, and payback. Round your answer for the NPV to the nearest dollar and for the IRR and payback to two decimal places. Use a minus sign to enter a negative value, if any. $ Risk-adjusted NPV Risk-adjusted IRR Risk-adjusted regular payback period % years activities. It would cost $11 million at Year O to buy the equipment necessary to manufacture the server. The project would require net working capital at the beginning of each year in an amount equal to 12% of the year's projected sales; for example, NWCO = 12%(Sales1). The servers would sell for $25,500 per unit, and Webmasters believes that variable costs would amount to $18,000 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 4%. The company's nonvariable costs would be $2 million at Year 1 and would increase with inflation. The server project would have a life of 4 years. If the project is undertaken, it must be continued for the entire 4 years. Also, the project's returns are expected to be highly correlated with returns on the firm's other assets. The firm believes it could sell 900 units per year. The equipment would be depreciated over a 5-year period, using MACRS rates. The estimated market value of the equipment at the end of the project's 4-year life is $400,000. Webmasters.com's federal-plus-state tax rate is 25%. Its cost of capital is 10% for average-risk projects, defined as projects with a coefficient of variation of NPV between 0.8 and 1.2. Low-risk projects are evaluated with a 7% project cost of capital and high-risk projects at 13%. The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. a. Develop a spreadsheet model, and use it to find the project's NPV, IRR, and payback. Round your answer for the NPV to the nearest dollar and for the IRR and payback to two decimal places. NPV IRR % Regular payback period years b. Now conduct a sensitivity analysis to determine the sensitivity of NPV to changes in the sales price, variable costs per unit, and number of units sold. Set these variables' values at 10% and 20% above and below their base-case values. Round your answers to the nearest dollar. Use a minus sign to enter a negative value, if any. % Deviation from Base Case NPV with Variables at Different Deviations from Base Sales Price Variable Cost per Unit Number of Units Sold $ $ -20% $ -10% $ $ $ 0% $ $ $ 10% $ $ $ $ 20% $ $ c. Now conduct a scenario analysis. Assume that there is a 30% probability that best-case conditions, with each of the variables discussed in Part b being 20% better than its base-case value, will occur. There is a 30% probability of worst-case conditions, with the variables 20% worse than base, and a 40% probability of base-case conditions. Round your answers for the NPV and standard deviation to the nearest dollar and for the coefficient of variation to two decimal places. Use a minus sign to enter a negative value, if any. Scenario NPV Best Case $ Base Case $ tA A Worst Case $ Expected NPV $ Standard Deviation $ Coefficient of Variation d. If the project appears to be more or less risky than an average project, find its risk-adjusted NPV, IRR, and payback. Round your answer for the NPV to the nearest dollar and for the IRR and payback to two decimal places. Use a minus sign to enter a negative value, if any. $ Risk-adjusted NPV Risk-adjusted IRR Risk-adjusted regular payback period % years