Need help answering questions 8 and 9 on the attached spreadsheet and below.

• 8.Bob?sSubmarineSandwichesexpectsannualsalesof$180,000,annualfixedcashoutlaysare$51,750ayearateachlocation,variablecashoutlaysare35percentofsales,depreciationis$14,000peryear,andtaxesare28%(ofpretaxincome).Openingpromotionandothercostsrequireaninitialoutlayof$66,000.Thecompanydoesitsanalysisbasedona8-yearstorelife.Bobbelievesthebusinesscanbesoldfor$110,000aftertaxes(disposalvalue)attheendofits8yearlifer.Usinga9%requiredreturn,whatisthenetpresentvalueofthisventure?
• 9.Please rework the prior problem to determine what annual sales volume is needed to generate a net present value of $0? To do this you will need to review the problem in the book and its excel answer. I will repeat the instructions here. You will need to calculate the net present value in the traditional way. You must make sure that the second year sales references the first year ( plus ?first year? in the formula). You will then do a goal seek to solve this problem The goal seek function is accessed by clicking on the DATA tab -- then clicking on the ?what if? box -- then clicking on the goal seek box. To use this function, you will set the ?npv? cell to zero by changing the first years sales cell. There are videos that illustrate how to do a goal seek on the internet. If you cannot figure this out, you may email me a phone number where you can be reached during the day (and one during the evening ? I will not call after 9:00pm your time). This offer is only good in the continental US -- sorry.

Practice Set Chapters 11 and 12: Name: Phil Capellupo Please type a numerical solution for each problem in the space provided below. 1. A single roll of a die with an equal probability of it landing on each of its six sides has the following payoffs: If a value of 1 or 2 appears on the face of the die, the player receives $40. If a 3 or 4 appear, the player receives $90. If a 5 or 6 appear, the player receives $115. What is the expected value from a single roll? $75 Would a risk-averse investor be willing to pay the expected value for the opportunity to play? A risk averse player will bet the minimum or $40. 2. If we open a casino there is a .60 probability that the casino will be commercially viable. If we must be awarded a gaming license before we are allowed to open the casino and the probability of getting this license is .18, what is the probability that we get our license and the casino will be commercially viable? 10.8% 3. Based on history, there is a .60 probability of a positive net present value when competitors do not respond to our introduction of a new product. Based on this same history, if competitors do respond, there is a .20 probability of a positive net present value. After studying history and the financial capabilities of our competitors going forward we determine that there is a .45 probability that competitors will respond. What is the probability of a positive net present value? 42% 4. Possible net present values and associated probabilities for a new investment are as follows: NPV -1450 320 360 444 555 950 1850 Probability .15 .10 .30 .10 .10 .15 .10 What is the expected value 335.9, median, 412 and mode 380 (remember the median is the center based on probabilities) 5. Athens Development Corporation is considering a new product that will be sensitive to both economic conditions and competitor response. The product manager has decided to focus on three economic conditions: weak economy, normal economy, and strong economy. Competitors either will or will not respond with a competitive product, and competitor response is unlikely unless economic conditions turn out to be strong. Annual cash flows for each of these conditions appear below. The product has a five-year life and will require an initial cash outlay of $432,000. The cost of capital is 7.5 percent. Should Athens invest in this product? Explain. Competitor Weak Normal Strong Response Economy Economy Economy Yes No $36,500 $48,500 $62,000 91,000 $93,000 124,000 Please complete the table of net present values below: Competitor Weak Normal Response Economy Economy Yes No 6. $-260674.61 $-140981.52 $ -204348.45 $4859.98 Strong Economy $4527.72 $150036.96 In a strong economy they should As a follow on to the prior problem, assume that the investment committee determined the probabilities below: Probability the competitor will response 30%, will not respond 70% Probability of each economic state over the six year horizon Weak - 15%., Normal - 60% and Strong 25% Please complete the table of joint probabilities (by multiplying the economy probability by the competitor response probability) below and then calculate the expected net present value. Competitor Response Yes No Weak Economy Normal Economy Strong Economy ______% ______% ______% ______% ______% ______% The expected net present value is ________________. 7. Sam's Pizza is considering a new store location. For accounting purposes, fixed operating costs for a store are $245,000 a year, and variable costs are 42 percent of sales. The average pizza sells for $12.50. Compute the annual break-even sales level in number of pizzas for this store location. 8. Bob's Submarine Sandwiches expects annual sales of $180,000, annual fixed cash outlays are $51,750 a year at each location, variable cash outlays are 35 percent of sales, depreciation is $14,000 per year, and taxes are 28% (of pretax income). Opening promotion and other costs require an initial outlay of $66,000. The company does its analysis based on a 8-year store life. Bob believes the business can be sold for $110,000 after taxes (disposal value) at the end of its 8 year lifer. Using a 9% required return, what is the net present value of this venture? 9. Please rework the prior problem to determine what annual sales volume is needed to generate a net present value of $0? To do this you will need to review the problem in the book and its excel answer. I will repeat the instructions here. You will need to calculate the net present value in the traditional way. You must make sure that the second year sales references the first year ( plus \"first year\" in the formula). You will then do a goal seek to solve this problem The goal seek function is accessed by clicking on the DATA tab -- then clicking on the \"what if\" box -- then clicking on the goal seek box. To use this function, you will set the \"npv\" cell to zero by changing the first years sales cell. There are videos that illustrate how to do a goal seek on the internet. If you cannot figure this out, you may email me a phone number where you can be reached during the day (and one during the evening - I will not call after 9:00pm your time). This offer is only good in the continental US -- sorry