I Need Answer in Excel

You are considering a start of a new product line.

Project cost $800,000

Project life 4 year

Depreciation straight-line to zero

Feasibility study $10,000

Sales units $450 units per Year

Price per unit $18,000

Variable cost per unit $15,400

Fixed costs $610,000 per year

The required return on the project is 10 percent, and the relevant tax rate is 35 percent.

a. Using Excel, what is the base case NPV? Would you accept this project?

b. Based on your experience, you think the unit sales, variable costs and fixed cost projections given here are probably accurate to within +/- 15 percent. Develop using Excel scenario manager, the best and worst scenarios.

c. Use Excel data table to perform a sensitivity analysis to change in fixed cost.

d. Using Excel, what will be the new base case NPV if equipment will be sold at the end of project for $500,000 and that there will be an initial investment in net working capital of $50,000 which will be recovered at the end of the project.

2. Mango Republic has just liberalized its markets and is now permitting foreign investors. Tesla Manufacturing has analyzed starting a project in the country and has determined that the project as a negative NPV. Why might the company go ahead with the project? What type of option is most likely to add value to this project?

3. Explain whether each of the following need to be treated as an incremental cashflow or not:

* Land you already own that will be used for the project, but otherwise will be sold for $700,000, its market value.

* A $300,000 drop in sales of steel shafts clubs if the titanium woods with graphite shafts are introduced.

* $200,000 spent on research and development last year on graphite shafts.

* Dividend payments by the firm.

* The resale value of plant and equipment at the end of the project's life.