B C D E F . Q7 Universal Farm Supply's management has observed that it can sell as much fertilizer as it can stock and is considering the possibility of purchasing a forklift and expanding its warehouse space in order to be able to handle and stock more fertilizer (both are necessary to expand sales). The forklift costs $54,000 and would be depreciated to a salvage value of So in 5 years, even though it is expected to last for 10 years. The warehouse expansion would cost $129,000 and would be depreciated to a salvage value of $40,000 in 10 years, at which point you expect the warehouse would be sold for $79,000. The expansion would allow Universal to sell 1,200,000 more pounds per year at $0.47 per pound (the fertilizer actually costs Universal $0.38 per pound to manufacture). To sell all that extra fertilizer, Universal would also need to increase net working capital by $6,500 for the duartion of the project. Universal's marginal tax rate is 22% and its required rate of return is 19%. (10 points total) Forklift Warehouse Cost $ 54,000 $ 129,000 Salvage Value $ $ 40,000 Life 10 Depreciation Price to Sell $ $ 79,000 Change in NWC $ 6,500 Sales Increase 1,200,000 Price per Pound $ 0.47 Cost per Pound $ 0.38 Profit per Pound Tax Rate 22% Required Return 19% 5 One Time CF Profits Depreciation Taxes After Tax CFS PV Year 0 1 2 3 4 5 6 Directions Q1 Q2 Q3 Q4 Q5 Q6 Q7 Ready C D E F G H . 2 3 4 5 6 7 8 D00 9 10 NPV Using a two way data table, conduct a sensitivity analyis to show what the NPV will be for different estimates of "Profits per Pound" and "Required Return". (5 points total) NPV Profits per Pound 0.08$ 0.09 $ $ 0.07 $ 0.10 $ 0.11 Req. Return 17% 18% 19% 20% 21% Under which of the listed scenarios (if any) would you recommend that Universal pursue this project? Why? Give as much detail to your reasoning as you can. (This question will be graded by hand. Any points you receive will be added to the score displayed when you click the "Grade Questions" button.) (5 points total) Directions Q1 02 OS B C D E F . Q7 Universal Farm Supply's management has observed that it can sell as much fertilizer as it can stock and is considering the possibility of purchasing a forklift and expanding its warehouse space in order to be able to handle and stock more fertilizer (both are necessary to expand sales). The forklift costs $54,000 and would be depreciated to a salvage value of So in 5 years, even though it is expected to last for 10 years. The warehouse expansion would cost $129,000 and would be depreciated to a salvage value of $40,000 in 10 years, at which point you expect the warehouse would be sold for $79,000. The expansion would allow Universal to sell 1,200,000 more pounds per year at $0.47 per pound (the fertilizer actually costs Universal $0.38 per pound to manufacture). To sell all that extra fertilizer, Universal would also need to increase net working capital by $6,500 for the duartion of the project. Universal's marginal tax rate is 22% and its required rate of return is 19%. (10 points total) Forklift Warehouse Cost $ 54,000 $ 129,000 Salvage Value $ $ 40,000 Life 10 Depreciation Price to Sell $ $ 79,000 Change in NWC $ 6,500 Sales Increase 1,200,000 Price per Pound $ 0.47 Cost per Pound $ 0.38 Profit per Pound Tax Rate 22% Required Return 19% 5 One Time CF Profits Depreciation Taxes After Tax CFS PV Year 0 1 2 3 4 5 6 Directions Q1 Q2 Q3 Q4 Q5 Q6 Q7 Ready C D E F G H . 2 3 4 5 6 7 8 D00 9 10 NPV Using a two way data table, conduct a sensitivity analyis to show what the NPV will be for different estimates of "Profits per Pound" and "Required Return". (5 points total) NPV Profits per Pound 0.08$ 0.09 $ $ 0.07 $ 0.10 $ 0.11 Req. Return 17% 18% 19% 20% 21% Under which of the listed scenarios (if any) would you recommend that Universal pursue this project? Why? Give as much detail to your reasoning as you can. (This question will be graded by hand. Any points you receive will be added to the score displayed when you click the "Grade Questions" button.) (5 points total) Directions Q1 02 OS