Hoosier Technology, Inc. is a producer of printers. Its current line of printers are selling excellently. However, in order to cope with the foreseeable competition with other similar printers, HT spent $5,900,000 to develop a new line of wifi portable color printers (new model development cost). This new printer model enables users to do printing wherever they need it. Users can do their print jobs wirelessly from their laptop or mobile devices such as smartphone or tablet, using the free HT ePrint app without building a network in advance. The new printer has a 2-inch display and can print in two different modes of capacity the standard input capacity and the maximum (two and a half times as much as standard) input capacity, for cards, sheets, transparencies, photo paper and labels. As this durable and compact printer can be fitted in car or backpack, it adds convenience to printing anywhere. Users can fully charge the printer from home, in their car or office by plugging it in their AC power source for 30 minutes while turning the printer off. The company had also spent a further $1,300,000 to study the marketability of this new line of wifi portable color printers (marketability studying cost). HT is able to produce the new printers at a variable cost of $70 each. The total fixed costs for the operation are expected to be $9,000,000 per year. HT expects to sell 3,200,000 printers, 3,800,000 printers, 2,500,000 printers, 1,400,000 printers and 1,000,000 printers of the new model per year over the next five years respectively. The new printers will be selling at a price of $120 each. To launch this new line of production, HT needs to invest $32,000,000 in equipment which will be depreciated on a seven-year MACRS schedule. The value of the used equipment is expected to be worth $4,200,000 as at the end of the 5 year project life. HT is planning to stop producing the existing printers entirely in two years. Should HT not introduce the new printers, sales per year of the existing printers will be 1,800,000 printers and 1,300,000 printers for the next two years respectively. The existing model can be produced at variable costs of $50 each and total fixed costs of $7,500,000 per year. The existing printers are selling for $100 each. If HT produces the new model, sales of existing model will be eroded by 1,080,000 printers for next year and 1,105,000 printers for the year after next. In addition, to promote sales of the existing model alongside with the new model, HT has to reduce the price of the existing model to $75 each. Net working capital for this new wifi portable color printer project will be 20 percent of sales and will vary with the occurrence of the cash flows. As such, there will be no initial NWC required. The first change in NWC is expected to occur in year 1 according to the sales of the year. HT is currently in the tax bracket of 35 percent and it requires a 20 percent returns on all of its projects. The firm also requires a payback of 4 years for all projects. You have just been hired by HT as a financial consultant to advise them on this new wifi portable color printer project. You are expected to provide answers to the following questions to their management by their next meeting which is scheduled sometime next month. What is/are the sunk cost(s) for this new wifi portable color printer project? Briefly explain. You have to tell what sunk cost is and the amount of the total sunk cost(s). In addition, you have to advise HT on how to handle such cost(s). What are the cash flows of the project for each year? What is the payback period of the project? What is the PI (profitability index) of the project? What is the IRR (internal rate of return) of the project? What is the NPV (net present value) of the project? Should the project be accepted based on Payback, PI, IRR and NPV? Briefly explain. The following steps will walk you through on how you should do your calculations for this case study. You follow the instructions and provide your responses accordingly. Please enter ALL the dollar amounts (including cash flows) below in whole numbers. Estimation of sunk costs Provide below the amounts of the sunk costs you identified from the case description above. being 1st sunk cost: $ background information.) cost (Use exactly the same wording as in the case being 2nd sunk cost: $ background information.) cost (Use exactly the same wording as in the case Total sunk costs = $ Yeart Net Sales =Unit sales of new model for Yeart Price of new model - Reduction in unit sales of existing model for Yeart Current price of existing model - [(Unit sales of existing model for Yeart if new model project is not launched - Reduction in unit sales of existing model if new model project is launched) * (Current price of existing model Reduced price of existing model)] Year 1 Net Sales $ $ -( x ($ $1 = $ Year 2 Net Sales $ $ *($ = $ Year 3 Net Sales = $ Year 4 Net Sales = $ Year 5 Net Sales = $ Variable Cost Estimation: Use the formula stated below to calculate the variable costs. Yeart Variable costs = Unit sales of new model for Year t x Variable cost per unit of new model - Reduction in unit sales of existing model for Yeart Variable cost per unit of existing model Year 1 Variable costs * $ =$ Year 2 Variable costs Year 3 Variable costs =$ Year 4 Variable costs =$ Year 5 Variable costs =$ Depreciation Estimation: Use the formula stated below to calculate the depreciation expenses. Depreciation of Yeart = Cost of equipment * MACRS percentage for Yeart [For all MACRS percentages in this part, enter as a decimal number with 4 decimal places.] Depreciation of Year 1 = $ =$ Depreciation of Year 2 = $ =$ Depreciation of Year 3 = Depreciation of Year 4 = $ Depreciation of Year 5 = $ =$ Net Working Capital Estimation: Use the formula stated below to calculate the net working capital requirements. NWC for Year t = NWC Required Percentage * Net sales of Yeart [For the NWC required percentage in this part, enter as a decimal number with 2 decimal places.] = = NWC for Year 1 NWC for Year 2 NWC for Year 3 NWC for Year 4 NWC for Year 5 A tAtA EA =$ IIIIII = $ CASH FLOW ESTIMATION: Complete the following table below. Year 1 Year 2 Year 3 Year 5 | Year 4 $ Sales IVC Fixed costs Dep Taxes (35%) INI + Dep OCF A A A tata ta ta ta ta AAAAAAAAA A ALA AAAAAA AAAAAAAAA AAAAAAAAA NWC Beg -End INWC CF | AAA A A A ATATA Alla AAA INCF $ $ $ $ le Estimation of total Year 5 cash flow: Provide your responses to the following. At the end of the project's 5-year life, Accumulated depreciation of equipment = $ Book value of equipment = $ Market value of equipment = $ Tax associated with sale of equipment = $ number if tax credit.] [Enter as a positive number if tax liability or as a negative CF on sale of equipment = $ Total Year 5 cash flow = $ Hint : Net CF (Net cash flow) = OCF (Operating cash flow) + NWC CF (Net working capital cash flow) Year 1 through Year 4 cash flow = Net CF of the individual years. Year 5 cash flow = Net CF of Year 5 + CF on sales of equipment. Evaluation of Project: Fill out the following tables. Cash flow Year O 1 2 3 4 5 Alata AAA (Do not round your calculations. Round your answers below to the number of decimal places specified.) Evaluation Method Payback PI (Profitability Index) IRR (Internal Rate of Return) NPV (Net Present Value) years (2 decimal places) (2 decimal places) % (2 decimal places) (whole number with no decimal place) (Enter "999" for Payback if the project will not payback. The "999" you provided does not mean that the project takes 999 years to payback. It is just that you tell the system that the project will not payback.) Hoosier Technology, Inc. is a producer of printers. Its current line of printers are selling excellently. However, in order to cope with the foreseeable competition with other similar printers, HT spent $5,900,000 to develop a new line of wifi portable color printers (new model development cost). This new printer model enables users to do printing wherever they need it. Users can do their print jobs wirelessly from their laptop or mobile devices such as smartphone or tablet, using the free HT ePrint app without building a network in advance. The new printer has a 2-inch display and can print in two different modes of capacity the standard input capacity and the maximum (two and a half times as much as standard) input capacity, for cards, sheets, transparencies, photo paper and labels. As this durable and compact printer can be fitted in car or backpack, it adds convenience to printing anywhere. Users can fully charge the printer from home, in their car or office by plugging it in their AC power source for 30 minutes while turning the printer off. The company had also spent a further $1,300,000 to study the marketability of this new line of wifi portable color printers (marketability studying cost). HT is able to produce the new printers at a variable cost of $70 each. The total fixed costs for the operation are expected to be $9,000,000 per year. HT expects to sell 3,200,000 printers, 3,800,000 printers, 2,500,000 printers, 1,400,000 printers and 1,000,000 printers of the new model per year over the next five years respectively. The new printers will be selling at a price of $120 each. To launch this new line of production, HT needs to invest $32,000,000 in equipment which will be depreciated on a seven-year MACRS schedule. The value of the used equipment is expected to be worth $4,200,000 as at the end of the 5 year project life. HT is planning to stop producing the existing printers entirely in two years. Should HT not introduce the new printers, sales per year of the existing printers will be 1,800,000 printers and 1,300,000 printers for the next two years respectively. The existing model can be produced at variable costs of $50 each and total fixed costs of $7,500,000 per year. The existing printers are selling for $100 each. If HT produces the new model, sales of existing model will be eroded by 1,080,000 printers for next year and 1,105,000 printers for the year after next. In addition, to promote sales of the existing model alongside with the new model, HT has to reduce the price of the existing model to $75 each. Net working capital for this new wifi portable color printer project will be 20 percent of sales and will vary with the occurrence of the cash flows. As such, there will be no initial NWC required. The first change in NWC is expected to occur in year 1 according to the sales of the year. HT is currently in the tax bracket of 35 percent and it requires a 20 percent returns on all of its projects. The firm also requires a payback of 4 years for all projects. You have just been hired by HT as a financial consultant to advise them on this new wifi portable color printer project. You are expected to provide answers to the following questions to their management by their next meeting which is scheduled sometime next month. What is/are the sunk cost(s) for this new wifi portable color printer project? Briefly explain. You have to tell what sunk cost is and the amount of the total sunk cost(s). In addition, you have to advise HT on how to handle such cost(s). What are the cash flows of the project for each year? What is the payback period of the project? What is the PI (profitability index) of the project? What is the IRR (internal rate of return) of the project? What is the NPV (net present value) of the project? Should the project be accepted based on Payback, PI, IRR and NPV? Briefly explain. The following steps will walk you through on how you should do your calculations for this case study. You follow the instructions and provide your responses accordingly. Please enter ALL the dollar amounts (including cash flows) below in whole numbers. Estimation of sunk costs Provide below the amounts of the sunk costs you identified from the case description above. being 1st sunk cost: $ background information.) cost (Use exactly the same wording as in the case being 2nd sunk cost: $ background information.) cost (Use exactly the same wording as in the case Total sunk costs = $ Yeart Net Sales =Unit sales of new model for Yeart Price of new model - Reduction in unit sales of existing model for Yeart Current price of existing model - [(Unit sales of existing model for Yeart if new model project is not launched - Reduction in unit sales of existing model if new model project is launched) * (Current price of existing model Reduced price of existing model)] Year 1 Net Sales $ $ -( x ($ $1 = $ Year 2 Net Sales $ $ *($ = $ Year 3 Net Sales = $ Year 4 Net Sales = $ Year 5 Net Sales = $ Variable Cost Estimation: Use the formula stated below to calculate the variable costs. Yeart Variable costs = Unit sales of new model for Year t x Variable cost per unit of new model - Reduction in unit sales of existing model for Yeart Variable cost per unit of existing model Year 1 Variable costs * $ =$ Year 2 Variable costs Year 3 Variable costs =$ Year 4 Variable costs =$ Year 5 Variable costs =$ Depreciation Estimation: Use the formula stated below to calculate the depreciation expenses. Depreciation of Yeart = Cost of equipment * MACRS percentage for Yeart [For all MACRS percentages in this part, enter as a decimal number with 4 decimal places.] Depreciation of Year 1 = $ =$ Depreciation of Year 2 = $ =$ Depreciation of Year 3 = Depreciation of Year 4 = $ Depreciation of Year 5 = $ =$ Net Working Capital Estimation: Use the formula stated below to calculate the net working capital requirements. NWC for Year t = NWC Required Percentage * Net sales of Yeart [For the NWC required percentage in this part, enter as a decimal number with 2 decimal places.] = = NWC for Year 1 NWC for Year 2 NWC for Year 3 NWC for Year 4 NWC for Year 5 A tAtA EA =$ IIIIII = $ CASH FLOW ESTIMATION: Complete the following table below. Year 1 Year 2 Year 3 Year 5 | Year 4 $ Sales IVC Fixed costs Dep Taxes (35%) INI + Dep OCF A A A tata ta ta ta ta AAAAAAAAA A ALA AAAAAA AAAAAAAAA AAAAAAAAA NWC Beg -End INWC CF | AAA A A A ATATA Alla AAA INCF $ $ $ $ le Estimation of total Year 5 cash flow: Provide your responses to the following. At the end of the project's 5-year life, Accumulated depreciation of equipment = $ Book value of equipment = $ Market value of equipment = $ Tax associated with sale of equipment = $ number if tax credit.] [Enter as a positive number if tax liability or as a negative CF on sale of equipment = $ Total Year 5 cash flow = $ Hint : Net CF (Net cash flow) = OCF (Operating cash flow) + NWC CF (Net working capital cash flow) Year 1 through Year 4 cash flow = Net CF of the individual years. Year 5 cash flow = Net CF of Year 5 + CF on sales of equipment. Evaluation of Project: Fill out the following tables. Cash flow Year O 1 2 3 4 5 Alata AAA (Do not round your calculations. Round your answers below to the number of decimal places specified.) Evaluation Method Payback PI (Profitability Index) IRR (Internal Rate of Return) NPV (Net Present Value) years (2 decimal places) (2 decimal places) % (2 decimal places) (whole number with no decimal place) (Enter "999" for Payback if the project will not payback. The "999" you provided does not mean that the project takes 999 years to payback. It is just that you tell the system that the project will not payback.)