Fill in all blanks of the excel template using the information and addressing the questions in the text below $2.$ Report the results of the NPV and IRR for the base case and alternative assumptions on first year sales, cost of capital, and revenue growth answering the questions below.

You have been hired by Internal Business Machines Corporation $($IBM$)$ in their capital budgeting division. Your first assignment is to determine the free cash flows and NPV of a proposed new type of tablet computer similar in size to an iPad but with the operating power of a high$-$end desktop system.

Development of the new system will initially require an initial capital expenditure equal to $10\%$ of $$10,793,000,$ which is IBM's Net Property, Plant, and Equipment $($PPE$)$ at the end of the latest fiscal year for which data is available $($year $0).$ The project will then require an additional investment equal to $50\%$ of the initial capital expenditure in the first year of the project $($year $1).$

The product is expected to have a life of five years. First$-$year revenues for the new product are expected to be $3\%$ of $$79,590,000,$ IBM's total revenue for the latest fiscal year. The new product's revenues are expected to grow at $15\%$ for the second year then $10\%$ for the third and $5\%$ annually for the final two years of the expected life of the project.

Your job is to determine the rest of the cash flows associated with this project. Your boss has indicated that the operating costs and net working capital requirements are similar to the rest of the company and that depreciation is straight$-$line for capital budgeting purposes.

Compute the Free Cash Flow for each year.

a$.$ Assume that the project's profitability will be similar to IBM's existing projects in the latest fiscal year and estimate $($revenues $-$ costs$)$ each year by using the latest EBITDA$/$Sales profit margin, which is $20\mathrm{.}8\%.$ Calculate EBITDA as EBIT $+$ Depreciation expense from the cash flow statement.

b$.$ Determine the annual depreciation by assuming IBM depreciates these assets by the straight$-$line method over a five$-$year life.

c$.$ Calculate the net working capital required each year by assuming that the level of NWC will be a constant percentage of the project's sales. Use IBM's NWC$/$Sales $(31\mathrm{.}3\%)$ for the latest fiscal year to estimate the required percentage. $($Use only accounts receivable, accounts payable, and inventory to measure working capital. Other components of current assets and liabilities are harder to interpret and not necessarily reflective of the project's required NWC$$for example, IBM's cash holdings. Accounts receivable from latest fiscal year $=$ $$29,820,000,$ Accounts Payable $=$ $$6,558,000,$ Inventory $=$ $$1,682,000)$

d$.$ To determine the free cash flow, deduct the additional capital investment and the change in net working capital each year.

EBITDA$/$Sales $=20\mathrm{.}8\%$

Cap Ex $=10\mathrm{.}0\%$

NWC$/$Sales $=31\mathrm{.}3\%$

Tax Rate $=21\mathrm{.}0\%$

Cost of Capital $($WACC$)=12\mathrm{.}0\%$

Yoy Growth:

Year $2$: $15\%$ growth from Year $1$ Revenues

Year $3$: $10\%$ growth from Year $2$ Revenues

Year $4$: $5\%$ growth from Year $3$ Revenues

Year $5$: $5\%$ growth from Year $4$ Revenues

Please don't forget to show the NWC each year and Change in NWC each year and explain how to calculate. Thank you.

$***$Required Content filled out for Excel Speadsheet $($Year $0$ to Year $6)$:$***$

$-$ Revenue

$-$ YOY Growth

$-$ EBITDA

$-$ Depreciation

$-$ EBIT

$-$ Taxes

$-$ Net Income

$-$ Depreciation $($added back$)$

$-$ Increase in NWC

$-$ CapEx

$-$ Free Cash Flow

$-$ Discount Factor

$-$ Present Value

$-$ NPV

$-$ IRR

$-$ NWC from Year $0$ Year $6$

$-$ Increase in NWC from Year $0$ Year $6$