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Metropolitan Co . ( MC ) is considering adding a new product line to its portfolio. MC has already paid $ 1 5 , 0
Metropolitan CoMC is considering adding a new product line to its portfolio. MC has already paid $ for a location feasibility study that recommended install the new plant within the current unused space in MCs main facilities. The machinery will have an invoice price of $ but it requires another $ to be installed. The machinery has an economic expected life of years but for depreciation purposes it will fall in the MACRS year class. An expected $ salvage yalue has to be rcognized The new product line would generate incremental sales of units per year for the next years with an incremental cost of $ per unit in the first year, excluding depreciation, and can be sold for $ The sales price and costs are expected to increase by per year due to inflation. To manage the new operation the MCs net operating working capital would have to increase by an amount equal to of sales revenues. Firm's tax rate is and its overall weighted average cost of capital is Even base case estimation is considered reliable; MCs management is assessing a chance of better than expected product acceptance and a chance of worse than expected product acceptance. A poor acceptance will imply a reduction of in sales at a reduced unit price of $; a strong consumer response will increase sales by with a unit price of $ a Determine expected NPV standard deviation and coefficient of variation of this project. b MCs average project has a coefficient of variation in the range of to What would be your analysis and recommendations for this project?
Metropolitan CoMC is considering adding a new product line to its portfolio. MC has already paid $ for a location feasibility study that recommended install the new plant within the current unused space in MCs main facilities. The machinery will have an invoice price of $ but it requires another $ to be installed. The machinery has an economic expected life of years but for depreciation purposes it will fall in the MACRS year class. An expected $ salvage yalue has to be rcognized The new product line would generate incremental sales of units per year for the next years with an incremental cost of $ per unit in the first year, excluding depreciation, and can be sold for $ The sales price and costs are expected to increase by per year due to inflation. To manage the new operation the MCs net operating working capital would have to increase by an amount equal to of sales revenues. Firm's tax rate is and its overall weighted average cost of capital is
Even base case estimation is considered reliable; MCs management is assessing a
chance of better than expected product acceptance and a chance of worse than expected product acceptance. A poor acceptance will imply a reduction of in sales at a reduced unit price of $; a strong consumer response will increase sales by with a unit price of $
a Determine expected NPV standard deviation and coefficient of variation of this project.
b MCs average project has a coefficient of variation in the range of to What would be your analysis and recommendations for this project?
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