DO CAPEX CASH FLOWS, NPV, PAYBACK, AND IRR BY FOLLOWING SPREADSHEET PROVIDED

The company's marketing team has conducted marketing test that suggests that there is a significant market for a Wheely-tire-type tire. If implemented, the Tiny Tread would be put on the market next year and Jasper expects it to stay on the market for four years. Research and development costs to date total $7 million including the marketing test costing $5 million. Further, to move forward, Jasper must invest $24 million in production equipment today and a $2 million licensing fee to the inventor of the technology. The equipment is expected to have a four-year useful life, with a zero-salvage value. The company will use an existing vacant factory site purchased 5 years for $5 million and currently worth $8 million. Wheely will be sold to the Original Equipment Manufacturer (OEM) Market. The OEM market consists primarily of large automobile companies (e.g. GM, Toyota) who buy tires for new cars. In the OEM market, the Wheely tire is expected to sell for $33 a tire. Each new car needs four new tires. The variable cost to produce each tire is $21 (and the variable cost is expected to increase with inflation) Jasper intends to raise tire prices at 1% less the inflation rate each year. In addition, the Wheely tire project will incur $7.5 million in marketing and general administration costs the first year (an amount that is expected to increase at the inflation rate in subsequent years). Annual inflation is expected to remain constant at 3.25% You should consider net working capital requirements. The immediate initial net working capital requirement is $5.5 million. After that, the net working capital requirement will be 15% of the next year's estimated total sales revenue. Automotive industry analysts expect automobile manufacturers to produce 2.1 million new cars next year and believe that production will grow by 2.5% per year thereafter. Jasper Tires expects the Wheely tire to capture 15% of the OEM market. Jasper's corporate tax rate is 21%. The company uses straight-line depreciation. Also, based on our estimation, the company should use a 9% discount rate to evaluate new product decisions. The company requires projects to be pay-back in less than five year Year 0 Year 1 Year 2 Year 3 Year 4 8 Capex Cash Flows 9 Development Costs Equipment 41 Test marketing costs 42 Change in NWC 43 Requirements 44 Change 45 46 OCF 47 Capex 48 Change NWC 49 Aggregate Free Cash 50 51 Payback (in years) 52 NPV 53 IRR 54 The company's marketing team has conducted marketing test that suggests that there is a significant market for a Wheely-tire-type tire. If implemented, the Tiny Tread would be put on the market next year and Jasper expects it to stay on the market for four years. Research and development costs to date total $7 million including the marketing test costing $5 million. Further, to move forward, Jasper must invest $24 million in production equipment today and a $2 million licensing fee to the inventor of the technology. The equipment is expected to have a four-year useful life, with a zero-salvage value. The company will use an existing vacant factory site purchased 5 years for $5 million and currently worth $8 million. Wheely will be sold to the Original Equipment Manufacturer (OEM) Market. The OEM market consists primarily of large automobile companies (e.g. GM, Toyota) who buy tires for new cars. In the OEM market, the Wheely tire is expected to sell for $33 a tire. Each new car needs four new tires. The variable cost to produce each tire is $21 (and the variable cost is expected to increase with inflation) Jasper intends to raise tire prices at 1% less the inflation rate each year. In addition, the Wheely tire project will incur $7.5 million in marketing and general administration costs the first year (an amount that is expected to increase at the inflation rate in subsequent years). Annual inflation is expected to remain constant at 3.25% You should consider net working capital requirements. The immediate initial net working capital requirement is $5.5 million. After that, the net working capital requirement will be 15% of the next year's estimated total sales revenue. Automotive industry analysts expect automobile manufacturers to produce 2.1 million new cars next year and believe that production will grow by 2.5% per year thereafter. Jasper Tires expects the Wheely tire to capture 15% of the OEM market. Jasper's corporate tax rate is 21%. The company uses straight-line depreciation. Also, based on our estimation, the company should use a 9% discount rate to evaluate new product decisions. The company requires projects to be pay-back in less than five year Year 0 Year 1 Year 2 Year 3 Year 4 8 Capex Cash Flows 9 Development Costs Equipment 41 Test marketing costs 42 Change in NWC 43 Requirements 44 Change 45 46 OCF 47 Capex 48 Change NWC 49 Aggregate Free Cash 50 51 Payback (in years) 52 NPV 53 IRR 54