:Help me answer the following questions.

A manufacturer is planning to produce and sell a new product. It would cost $20 million at Year 0 to buy the equipment necessary to manufacture the product. The project would require net working capital at the beginning of each year in an amount equal to 15% of the year's projected sales; for example, NWC0 = 15%(Sales1). The product would sell for $30 per unit, and believes that variable costs would amount to $15 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 3%. The project's fixed costs would be $5/unit at Year 1 and would increase with inflation.

The products will be sold for 4 years. If the project is undertaken, it must be continued for the entire 4 years. The firm believes it could sell 500,000 units per year.

The equipment would be depreciated over using straight-line depreciation. The estimated market value of the equipment at the end of the project's 4-year life is $500,000. The federal-plus-state tax rate is 40%. Its cost of capital is 10%.

Do parts a-e in Excel with separate tabs for each part.Do part f) in Word.

a.Develop a spreadsheet model, and use it to find the project's NPV, IRR, and payback. (Suggestion:Use the ch. 13 Build A Model as a reference. However, your spreadsheet model should be clearly built from scratch, not copied and pasted in that one.The capital budgeting metrics are covered in chapter 12 ).

b.Now conduct a sensitivity analysis to determine the sensitivity of NPV to changes in the sales price, variable costs per unit, and number of units sold. Set these variables' values at least 5%, 10%, and 20% above and below their base-case values. Include a graph in your analysis. To which variable does NPV appear most sensitive?(Suggestions: Use Excel's Data Table feature, or re-calculate the NPV of each input level and then copy and paste the results).

c.Now conduct a scenario analysis. Assume that there is a 25% probability that best-case conditions, with each of the variables discussed in Part b being 20% better than its base-case value, will occur. There is a 25% probability of worst-case conditions, with the variables 20% worse than base, and a 50% probability of base-case conditions.(Suppose the average CV of this company's projects is 2.0. Is this project more or less risky than the average project for this company?).Use the approach in the Build-A-Model.

d.Set up your own numerical example of a real option. You can choose either a timing or an abandonment option. Use any probabilities and cash flows that make sense.

B)Graphs depicting sensitivity of NPV to changes in Sale price, variable costs and units sold are shown below. As seen from the graphs the NPV appears most sensitive to changes in the sale price. Cash flow workings are also given:

Sale price NPV Variable cost NPV Sale units NPV $24.00 $10,085,543 $12.00 -$1,314,091 $400,000 -$6,121,044 $27.00 $7,186,505 $13.50 -$2,800,779 $450,000 -$5,204,256 $28.50 $5,736,984 $14.25 -$3,544,122 $475,000 -$4,745,860 $30.00 $4,287,465 $15.00 -$4,287,465 $500,000 -$4,287,465 $31.50 $2,837,946 $15.75 -$5,030,809 $525,000 -$3,829,071 $33.00 -$1,388,426 $16.50 -$5,774,151 $550,000 -$3,370,674 $36.00 $1,510,613 $18.00 -$7,260,839 $600,000 -$2,453,886 Sensitivity to Sale Price Sensitivity to Variable cost Sensitivity to Sale units $4,000,000.00 $2,000,000.00 $2,000,000 $2,000,000.00 $0.00 SO $0.00 2 3 4 5 6 7 1 2 3 4 5 6 7 -$2,000,000.00 1 2 3 4 5 -$2,000,000.00 -$2,000,000 -$4,000,000.00 -$4,000,000.00 -$4,000,000 -$6,000,000.00 -$8,000,000.00 -$6,000,000.00 -$6,000,000 -$10,000,000.00 -$8,000,000.00 -$8,000,000 -$12,000,000.00 -Variable cost NPV -Sale units NPV -Sale price NPVInput Variable Sale price $30 per unit Variable cost per unit $15 per unit Number of units sold 500,000 Projected Income Statement Year 0 1 2 3 4 Sales $15,000,000 $15,450,000 $15,913,500 $16,390,905 Profit on sale of asset $500,000 Variable Costs $7,500,000 $7,725,000 $7,956,750 $8,195,453 Fixed Costs $2,500,000 $2,575,000 $2,652,250 $2,731,818 Depreciation $5,000,000 $5,000,000 $5,000,000 $5,000,000 Earnings before taxes $0 $150,000 $304,500 $963,635 Tax @40% SO $60,000 $121,800 $385,454 Net Income So $90,000 $182,700 $578,181 Projected Cash Flow Statement Year 0 1 2 3 4 Initial Investment $20,000,000 Salvage value $500,000 Net Working Capital -$2,250,000 -$67,500 -$69,525 -$71,611 $2,458,636 Cash from Operations $5,000,000 $5,090,000 $5,182,700 $5,078,181 (Net Income + Deprn - Profit on sale ) Net Cash Flow -$22,250,000 $4,932,500 $5,020,475 $ $5,111,089 $8,036,817 Present Value of Net Cash flow -$22,250,000 $4,484,091 $4,149,153 $3,840,037 $5,489,254 (Net CF / (1+0.1)^n) Net Present Value -$4,287,465 Sum of all PVA company share price is to be modelled using a 5-step recombining binomial tree. with each step in the tree representing one day. Each day. it is assumed that the share price: increases hy 7%, or decreases by 1% You may assume that the force of interest is 8 = 5.5% pa and that there are 365 days in a year, No dividends me to be paid over the next five days. Calculate the risk-neutral probability of an up-step on any given day (ii) Calculate the fair price of a 5-day at-the-money call option on $10,000 worth of shares in this company. [5] A special option is available where the payoff after 5 days is: where S, is the arithmetic average share price recorded at the end of each of the 5 days and K is the strike price. (iii) Calculate the fair price of a 3-day special option (strike price A = 1.005, ) on [10,000 worth of shares in this company. (iv) Explain whether an at-the-money special option is likely to have a higher value of vega than a standard "vanilla" call option [Toll 14]..ooo Comvia 09:48 @ 1 17%