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This is for questions 27-34 Perform a scenario analysis creating a best case and a worst case in addition to the base case. The managers give you the following information The chief marketing officer (CMO) estimates that they will sell 7,000 units a year for 5 years at a price of $150 each. If people really like the concept of brewing their own frappuccinos and lattes she estimates that they will sell 8,000 units a year and can charge $175 per unit. She estimates that there is a 20% chance of this. If people do not want the bother of brewing their own and do not worry about going inside the Starbucks, then she estimates they will only sell 5,000 units and can only sell them for $100 each. She estimates there is a 30% chance of this happening. The chief operations officer (COO) estimates that the variable costs to build these will be 60% of revenue. If they can get the higher volumes, then he estimates the cost to be only 55%. But with the really low volumes the cost will be 75%. The chief financial officer (CFO) says the company will use the MACRS 3 year class for depreciation. He estimates that the assembly line will have salvage value of $20,000. However, he notes that worst case there may be nothing to salvage and best case they could find a buyer willing to pay $40,000. He notes that Starbuck's tax rate is 21% and that the normal WACC is 9.5%. He notes that the WACC could be as high as 11% (worst case) and as low as 8% (best case). Use the data and instructions from part 3 of the Starbuck's project data. What is the NPV in the BEST case scenario? O A. $3,664,764.61 OB. $2,683,004.24 OC. $1,613,205.50 OD. $1,602,452.29 QUESTION 29 Use the data andi instructions from part 3 of the starbuck's project data. What is the NPV in the WORST case scenario? O A. -$37,678.36 OB. -$57,262.26 O C. -$19,996.43 OD. $21,888.54 Use the data and instructions from part 3 of the Starbuck's project data. What is the Expected NPV for this project? O A. $564,322.78 B. $753,779.74 OC. $898,667.90 OD. $1,531,338.26 QUESTION 31 Use the data and instructions from part 3 of the Starbuck's project data. What is the standard deviation of the NPVs of this project? A. $113,659.70 B. $351,290.38 OC. $414,509.01 OD. $586,718.42 Use the data and instructions from part 3 of the Starbuck's project data. What is the coefficient of variation of the NPVs of this project? O A..7784 B..9885 OC.1.002 OD. 1.041 QUESTION 33 By doing this project, Starbuck's may take away revenue from Starbuck's brick and mortar stores. Should this decrease in revenue be included in the business case? O NO the business case should stand on its own NO- this is a sunk cost YES- this is a negative externality YES- this is a positive externality How could managers use real options to Starbuck's advantage with this project? A. If this product is not well received by customers, management can decide to abandon the project after one year. B. If this project does better than expected in year one, management could expand the project to more regions. OC. If this project does better than expected in year one, management could decide to invest further and create additional models. D. All of these are real options that management has. File Home Insert Draw Design Layout References Mailings Review View Help Se Use this information to answer the questions in Blackboard I. This is for questions 1- 19 Starbucks is discussing a new project amongst their management team. They are considering a project where they will sell to the public the coffee makers that they use in their stores. This way customers can brew their Starbucks coffees at home at not have to worry about going inside the restaurant and being exposed to other people. The chief marketing officer (CMO) estimates that they will sell 7,000 units a year for 5 years at a price of $150 each. 1 The chief operations officer (COO) estimates that the variable costs to build these will be 60% of revenue. The COO says the company will need to buy an assembly line to make these. The assembly line costs $450,000 and has a shipping cost of $20,000. The COO adds that they will need to purchase an additional S40,000 in inventory and accounts payable will increase by $7,000. Once the project ends, they will no longer need additional inventory and will pay the accounts payable balance. ow The chief financial officer (CFO) The CFO says to use the MACRS 3 year class for depreciation. (These are the same rates as used in the slides.) He estimates that the assembly line will have a salvage value of $20,000. He notes that Starbuck's tax rate is 21% and that the normal WACC is 9.5% Submit 07:03 The CMO notes that they have done an extensive marketing survey and many Starbucks customers are scared to go to a store in today's environment and would be happy to purchase their own equipment. This research is already paid for and cost $75,000. Page 2 of 2 621 words This is for questions 27-34 Perform a scenario analysis creating a best case and a worst case in addition to the base case. The managers give you the following information The chief marketing officer (CMO) estimates that they will sell 7,000 units a year for 5 years at a price of $150 each. If people really like the concept of brewing their own frappuccinos and lattes she estimates that they will sell 8,000 units a year and can charge $175 per unit. She estimates that there is a 20% chance of this. If people do not want the bother of brewing their own and do not worry about going inside the Starbucks, then she estimates they will only sell 5,000 units and can only sell them for $100 each. She estimates there is a 30% chance of this happening. The chief operations officer (COO) estimates that the variable costs to build these will be 60% of revenue. If they can get the higher volumes, then he estimates the cost to be only 55%. But with the really low volumes the cost will be 75%. The chief financial officer (CFO) says the company will use the MACRS 3 year class for depreciation. He estimates that the assembly line will have salvage value of $20,000. However, he notes that worst case there may be nothing to salvage and best case they could find a buyer willing to pay $40,000. He notes that Starbuck's tax rate is 21% and that the normal WACC is 9.5%. He notes that the WACC could be as high as 11% (worst case) and as low as 8% (best case). Use the data and instructions from part 3 of the Starbuck's project data. What is the NPV in the BEST case scenario? O A. $3,664,764.61 OB. $2,683,004.24 OC. $1,613,205.50 OD. $1,602,452.29 QUESTION 29 Use the data andi instructions from part 3 of the starbuck's project data. What is the NPV in the WORST case scenario? O A. -$37,678.36 OB. -$57,262.26 O C. -$19,996.43 OD. $21,888.54 Use the data and instructions from part 3 of the Starbuck's project data. What is the Expected NPV for this project? O A. $564,322.78 B. $753,779.74 OC. $898,667.90 OD. $1,531,338.26 QUESTION 31 Use the data and instructions from part 3 of the Starbuck's project data. What is the standard deviation of the NPVs of this project? A. $113,659.70 B. $351,290.38 OC. $414,509.01 OD. $586,718.42 Use the data and instructions from part 3 of the Starbuck's project data. What is the coefficient of variation of the NPVs of this project? O A..7784 B..9885 OC.1.002 OD. 1.041 QUESTION 33 By doing this project, Starbuck's may take away revenue from Starbuck's brick and mortar stores. Should this decrease in revenue be included in the business case? O NO the business case should stand on its own NO- this is a sunk cost YES- this is a negative externality YES- this is a positive externality How could managers use real options to Starbuck's advantage with this project? A. If this product is not well received by customers, management can decide to abandon the project after one year. B. If this project does better than expected in year one, management could expand the project to more regions. OC. If this project does better than expected in year one, management could decide to invest further and create additional models. D. All of these are real options that management has. File Home Insert Draw Design Layout References Mailings Review View Help Se Use this information to answer the questions in Blackboard I. This is for questions 1- 19 Starbucks is discussing a new project amongst their management team. They are considering a project where they will sell to the public the coffee makers that they use in their stores. This way customers can brew their Starbucks coffees at home at not have to worry about going inside the restaurant and being exposed to other people. The chief marketing officer (CMO) estimates that they will sell 7,000 units a year for 5 years at a price of $150 each. 1 The chief operations officer (COO) estimates that the variable costs to build these will be 60% of revenue. The COO says the company will need to buy an assembly line to make these. The assembly line costs $450,000 and has a shipping cost of $20,000. The COO adds that they will need to purchase an additional S40,000 in inventory and accounts payable will increase by $7,000. Once the project ends, they will no longer need additional inventory and will pay the accounts payable balance. ow The chief financial officer (CFO) The CFO says to use the MACRS 3 year class for depreciation. (These are the same rates as used in the slides.) He estimates that the assembly line will have a salvage value of $20,000. He notes that Starbuck's tax rate is 21% and that the normal WACC is 9.5% Submit 07:03 The CMO notes that they have done an extensive marketing survey and many Starbucks customers are scared to go to a store in today's environment and would be happy to purchase their own equipment. This research is already paid for and cost $75,000. Page 2 of 2 621 words
