Blue colored blanks need to be filled. I've been struggling with these for several days. Please help me. Thank you.

278 Part Three Best Practices in Capital Budgeting "Hey, this might be fun" George exclaimed to Mr. Waldo's secretary, Fifi, who was heading for Old Orchard Beach for the weekend. "I might even try Monte Carlo." Waldo went to Monte Carlo once." Fifi replied. "Lost a bundle at the roulette table. I wouldn't remind him. Just show him the bottom line. Will it make money or lose money? That's the bottom line." OK, no Monte Carlo," George agreed. But he realized that building a spreadsheet and run ning scenarios was not enough. He had to figure out how to summarize and present his results to Mr. County. QUESTIONS 1. What is the project's NPV, given the projections in Table 10.8? 2. Conduct a sensitivity and a scenario analysis of the project. What do these analyses reveal about the project's risks and potential value? WALDO COUNTY Minicase Solution, Chapter 10 Principles of Corporate Finance, 12th Ed R. A. Brealey, S. C. Myers and F. Allen Year 5 to 17 10 Inputs Investment (real) 12 Inflation 13 14 Discount rate 15 (real) 16 minal) 17 18 Tax rate 19 20 Forecast errors: 2.00% Land Construction 6.863% 9.00% Income (real) 35.00% Rentals Share of sales Costs Real estate taxes 22 Rental error, % of base case 23 Sales error, % of base case 24 25 26 27 Delay 1. No delay 0 28 Pre-tax operating cash flow Tax at 35% After-tax operating cash flow Terminal Value Cash flow (real) (excludes depreclation tax shields NPV 32 Cash flows (real) 33 PV(tax shield) 34 Total 35 36 Depreciation (nominal) Tax shield Terminal Value of Tax Shield PVitax shield Simulation NPV (Project) 36.56 PV (Tax effect 2% 10% Norma 205% Norma 40% no delay no cost-overrun delayed / with cost-overrun 9.5 9.5 9.5 9.5 Rate of Inflation Rent 36.56 Rent (additonal % of sales) 36.56 construction completion cost- 36.56 ovemun sis - Different combinations of scenarios Scenario Analys SalesA40% (0) Sales Nomal x) NPV Inflation 1096(0) Construction delay + Cost overrun (O) rent A2096 (O) Inflation 296 ( x) ) No delay No cost overun rent normal ( 2 10 12 13 14 15 16 36.56 Note: depreciation is not deducted from operating cash flow. PV(tax shield) is calculated separately, in order to see the effect of inflation. We use the same discount rate to value the cash fows and the tax shield. A more detailed analysis would recognize that the tax shields are likely to be safer The Excel spreadshect above will carry out the various sensitivity and breakeven analyses suggested in the minicasc. Enter changes in the inflation rate and forecast errors for rental revenues and share of retail sales in the spreadsheet's left hand panel. To see the effect of a year's delay in startup, enter 0 if no delay and 1 is start up is delayed one year. Changes in the timing and amount of construction costs should be entered directly in the cash flow table. All cash flows cxcept depreciation are forccasted in rcal terms. Note that depreciation is not subtracted in calculating operating cash flow. Depreciation tax shields are valued separately by discounting at the nominal rate. I isolated these tax shields to see the effect of changes in inflation. Inflation affects the PV of depreciation tax shields, which are fixed in nominal terms. The other cash flows are given in real terms and discounted at (1.09/1.02)-1-0686 The project's terminal value is $30 million, the value of the land in year 18, or in year 19 if construction and startup are delayed. If all goes as planned, the project's NPV is $36.6 million, but cash flows could turn out worse or better than projected. For example, a 20 per cent shortfall in rentals and share of retail sales cuts NPV to - S1.1 million. 278 Part Three Best Practices in Capital Budgeting "Hey, this might be fun" George exclaimed to Mr. Waldo's secretary, Fifi, who was heading for Old Orchard Beach for the weekend. "I might even try Monte Carlo." Waldo went to Monte Carlo once." Fifi replied. "Lost a bundle at the roulette table. I wouldn't remind him. Just show him the bottom line. Will it make money or lose money? That's the bottom line." OK, no Monte Carlo," George agreed. But he realized that building a spreadsheet and run ning scenarios was not enough. He had to figure out how to summarize and present his results to Mr. County. QUESTIONS 1. What is the project's NPV, given the projections in Table 10.8? 2. Conduct a sensitivity and a scenario analysis of the project. What do these analyses reveal about the project's risks and potential value? WALDO COUNTY Minicase Solution, Chapter 10 Principles of Corporate Finance, 12th Ed R. A. Brealey, S. C. Myers and F. Allen Year 5 to 17 10 Inputs Investment (real) 12 Inflation 13 14 Discount rate 15 (real) 16 minal) 17 18 Tax rate 19 20 Forecast errors: 2.00% Land Construction 6.863% 9.00% Income (real) 35.00% Rentals Share of sales Costs Real estate taxes 22 Rental error, % of base case 23 Sales error, % of base case 24 25 26 27 Delay 1. No delay 0 28 Pre-tax operating cash flow Tax at 35% After-tax operating cash flow Terminal Value Cash flow (real) (excludes depreclation tax shields NPV 32 Cash flows (real) 33 PV(tax shield) 34 Total 35 36 Depreciation (nominal) Tax shield Terminal Value of Tax Shield PVitax shield Simulation NPV (Project) 36.56 PV (Tax effect 2% 10% Norma 205% Norma 40% no delay no cost-overrun delayed / with cost-overrun 9.5 9.5 9.5 9.5 Rate of Inflation Rent 36.56 Rent (additonal % of sales) 36.56 construction completion cost- 36.56 ovemun sis - Different combinations of scenarios Scenario Analys SalesA40% (0) Sales Nomal x) NPV Inflation 1096(0) Construction delay + Cost overrun (O) rent A2096 (O) Inflation 296 ( x) ) No delay No cost overun rent normal ( 2 10 12 13 14 15 16 36.56 Note: depreciation is not deducted from operating cash flow. PV(tax shield) is calculated separately, in order to see the effect of inflation. We use the same discount rate to value the cash fows and the tax shield. A more detailed analysis would recognize that the tax shields are likely to be safer The Excel spreadshect above will carry out the various sensitivity and breakeven analyses suggested in the minicasc. Enter changes in the inflation rate and forecast errors for rental revenues and share of retail sales in the spreadsheet's left hand panel. To see the effect of a year's delay in startup, enter 0 if no delay and 1 is start up is delayed one year. Changes in the timing and amount of construction costs should be entered directly in the cash flow table. All cash flows cxcept depreciation are forccasted in rcal terms. Note that depreciation is not subtracted in calculating operating cash flow. Depreciation tax shields are valued separately by discounting at the nominal rate. I isolated these tax shields to see the effect of changes in inflation. Inflation affects the PV of depreciation tax shields, which are fixed in nominal terms. The other cash flows are given in real terms and discounted at (1.09/1.02)-1-0686 The project's terminal value is $30 million, the value of the land in year 18, or in year 19 if construction and startup are delayed. If all goes as planned, the project's NPV is $36.6 million, but cash flows could turn out worse or better than projected. For example, a 20 per cent shortfall in rentals and share of retail sales cuts NPV to - S1.1 million