Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider the same project from Q1, but suppose that the project will require working capital in the amount of $0.87 in 2022 for every unit

image text in transcribedimage text in transcribedimage text in transcribed

Consider the same project from Q1, but suppose that the project will require working capital in the amount of $0.87 in 2022 for every unit of next year's forecasted sales and that this amount will grow with inflation going forward. What is the project's NPV? \begin{tabular}{l|l} ProJect NPV & Sensitivity Analysis \end{tabular} (in thousands of $ ) Year \begin{tabular}{|l|l|l|l|l|l|l|l|} \hline 2022 & 2023 & 2024 & 2025 & 2026 & 2027 & 2028 & 2029 \\ \hline \end{tabular} Working Capital Work Cap / Next Yr Unit Sales Working Capital Cash Flow Forecasts Sales Revenue Variable Costs Gross Margin $0.87 Cash Fixed Costs Depreciation Total Fixed Costs Operating Profit \begin{tabular}{lrrrrrrrr} Taxes & & ($957) & ($957) & ($957) & ($957) & ($957) & ($957) & ($957) \\ \hline Net Profit & ($3,600) & ($3,600) & ($3,600) & ($3,600) & ($3,600) & ($3,600) & ($3,600) \end{tabular} \begin{tabular}{l|r|r|r|r|r|r|r|} \hline Add Back Depreciation & $4,557 & $4,557 & $4,557 & $4,557 & $4,557 & $4,557 & $4,557 \\ \hline Operating Cash Flow & $957 & $957 & $957 & $957 & $957 & $957 & $957 \end{tabular} Investment in Working Capital Investment in Plant \& Equip ($37,500) Investment Cash Flow Cash Flows Present Value of Each Cash Flow Net Present Value \begin{tabular}{|l|l|l|l|l|l|l|l|} \hline$0 & $957 & $957 & $957 & $957 & $957 & $957 & $957 \\ \hline$0 & $957 & $957 & $957 & $957 & $957 & $957 & $957 \\ \hline \end{tabular} Assume that the product life-cycle of seven years is viewed as a safe bet, but that the scale of demand for the product is highly uncertain. Analyze the sensitivity of the project's NPV to the unit sales scale factor and to the cost of capital. Note: Change the axis min and max values. Also, change the data cells since scenario input number are more than the Excel examples discusssed in the class. Consider the same project from Q1, but suppose that the project will require working capital in the amount of $0.87 in 2022 for every unit of next year's forecasted sales and that this amount will grow with inflation going forward. What is the project's NPV? \begin{tabular}{l|l} ProJect NPV & Sensitivity Analysis \end{tabular} (in thousands of $ ) Year \begin{tabular}{|l|l|l|l|l|l|l|l|} \hline 2022 & 2023 & 2024 & 2025 & 2026 & 2027 & 2028 & 2029 \\ \hline \end{tabular} Working Capital Work Cap / Next Yr Unit Sales Working Capital Cash Flow Forecasts Sales Revenue Variable Costs Gross Margin $0.87 Cash Fixed Costs Depreciation Total Fixed Costs Operating Profit \begin{tabular}{lrrrrrrrr} Taxes & & ($957) & ($957) & ($957) & ($957) & ($957) & ($957) & ($957) \\ \hline Net Profit & ($3,600) & ($3,600) & ($3,600) & ($3,600) & ($3,600) & ($3,600) & ($3,600) \end{tabular} \begin{tabular}{l|r|r|r|r|r|r|r|} \hline Add Back Depreciation & $4,557 & $4,557 & $4,557 & $4,557 & $4,557 & $4,557 & $4,557 \\ \hline Operating Cash Flow & $957 & $957 & $957 & $957 & $957 & $957 & $957 \end{tabular} Investment in Working Capital Investment in Plant \& Equip ($37,500) Investment Cash Flow Cash Flows Present Value of Each Cash Flow Net Present Value \begin{tabular}{|l|l|l|l|l|l|l|l|} \hline$0 & $957 & $957 & $957 & $957 & $957 & $957 & $957 \\ \hline$0 & $957 & $957 & $957 & $957 & $957 & $957 & $957 \\ \hline \end{tabular} Assume that the product life-cycle of seven years is viewed as a safe bet, but that the scale of demand for the product is highly uncertain. Analyze the sensitivity of the project's NPV to the unit sales scale factor and to the cost of capital. Note: Change the axis min and max values. Also, change the data cells since scenario input number are more than the Excel examples discusssed in the class

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Entrepreneurial Finance

Authors: Gary E. Gibbons, Robert D. Hisrich, Carlos Marques DaSilva

1st Edition

1452274177, 978-1452274171

More Books

Students also viewed these Finance questions