How was the NPV calculated?? PLEASE SHOW WORK & HOW YOU GOT THE NPV STEP-BY-STEP
Answer Key Problem #1 (11 points) You are considering a new product launch. The plant and equipment will cost $1,200,000, have a five year life, and be depreciated on a straight line basis to zero salvage value. Sales are projected at 1,400 units per year, price per unit will be $9,500, variable cost per unit w $6,700, and fixed costs will be $600,000 per year. The project will require an investment in inventory of $150,000 to be returned at the the project. The require return on the project is 12% and the tax rate is 35%. Based on your knowledge, you feel that the price and quant accurate to within +/- 10% and fixed costs and variable costs are accurate to within +/- 15%. Show a table with the base case, best case worst case values for the project. Also, calculate the payback period, NPV and IRR for the worst-case scenario. $ $ Equipment Project life (years) Units per year Price per unit Variable cost per unit Fixed costs NWC Required return Tax rate Uncertainty Price Units per year Variable cost Fixed cost 1,200,000 5 1,400 9,500 6,700 600,000 150,000 12% 35% 10% 10% 15% 15% Quantity per year Price/unit Variable costs/unit Fixed costs $ $ $ Base 1,400 9,500.00 $ 6,700.00 $ 600,000 $ Best 1,540 10,450.00 $ 5,695.00 $ 510,000 $ Worst 1,260 8,550.00 7,705.00 690,000 $ $ 0 1 2 3 4 5 A A A A A A (1,350,000) 327,555 327,555 327,555 327,555 477,555 $ $ NPV IRR Payback period ($84,123.50) 9.58% 4.083 years Answer Key Problem #1 (11 points) You are considering a new product launch. The plant and equipment will cost $1,200,000, have a five year life, and be depreciated on a straight line basis to zero salvage value. Sales are projected at 1,400 units per year, price per unit will be $9,500, variable cost per unit w $6,700, and fixed costs will be $600,000 per year. The project will require an investment in inventory of $150,000 to be returned at the the project. The require return on the project is 12% and the tax rate is 35%. Based on your knowledge, you feel that the price and quant accurate to within +/- 10% and fixed costs and variable costs are accurate to within +/- 15%. Show a table with the base case, best case worst case values for the project. Also, calculate the payback period, NPV and IRR for the worst-case scenario. $ $ Equipment Project life (years) Units per year Price per unit Variable cost per unit Fixed costs NWC Required return Tax rate Uncertainty Price Units per year Variable cost Fixed cost 1,200,000 5 1,400 9,500 6,700 600,000 150,000 12% 35% 10% 10% 15% 15% Quantity per year Price/unit Variable costs/unit Fixed costs $ $ $ Base 1,400 9,500.00 $ 6,700.00 $ 600,000 $ Best 1,540 10,450.00 $ 5,695.00 $ 510,000 $ Worst 1,260 8,550.00 7,705.00 690,000 $ $ 0 1 2 3 4 5 A A A A A A (1,350,000) 327,555 327,555 327,555 327,555 477,555 $ $ NPV IRR Payback period ($84,123.50) 9.58% 4.083 years
