Need help on bottom questions 3-7

WapLLA DUYULLY DIV9000 IVWIVII Crystal Lake Company is considering launching a product line extension - a 'new and improved version with enhanced product features and enviromentally friendly packaging. Below are the basic assumptions 1980ciated with the new product line extension: Year 0 1 7 & Fquipment NWC (S0000 30000) $1,500,000,000 $ 120.000.000 $ 0,520,000,001 Data: Project life 4 Years Cost of equipment $ (1,600,0001 Year O Incr. in Inventory $ 50,000 Year 1 Incr. in AR $ 120,000 Year O Incr. in AP $ 30,000 NWC Inreases wi sales after initial investment Sales Year 1 1,500,000 Sales increase per year Depreciation $ 400,000) Operating costs 25% of sales G&A allocation from Corporate S (50,000 ) Year 1 launch costs 5 (75,000) Prior year market research cost $ (60,0001 Inflation estimate per year 3% included in sales) WACC 12% Taxes 21% Afler lax cash flows cannabilized frorn existing product line per year $ Proceeds for salvage value of equipment at end of 4 years $ Sales Operating Costs DEPR G & AAllocation Year 1 Launch Cost Before tax operating income After Tax Operating income Add: DEPR : Operating cash flow Accounts recieveable Terminal Cash Flow Net Cash Flow Oummulative Cash Flow Present Valuee.CF NPV (1487209+1620000/1620000 Fi Payback IRR MIRR $ $ $ $ $ $ $ $ $ $ 1.500,000 $ 1,505,000 $ 1,717,350 $ 1,537.565 (375,000 $ 4401,250 $ 429,3381 159,3911 (400,000 $ (400,000 $ 400,000 $ ( (400,000 150,000 $ 150,000 $ 150,000 $ 150,0001 175,0001 600,000 $ 753,750 S 838,013 S 928,173 474,000 $ 595,463 $ 562,030 $ 733,257 400,000 $ 400,000 $ 400,000 $ 874,000 $ 995,463 $ 1,062.030 $ 1,133,257 (120,0001 $ 258,500 754.000 $ 995,463 $ 1,062,090 1,391,757 (366,000 $ 129 463 $ 1,191,492 $ $ 2,583,249 673,214 $ 793,577 S 755,932 $ 994.497 400.000 $1,620,000.00 $ $ 11,520,000.00 $ $0.620,000.00 $ $ 713,883.60 $ 1.92 50,000 150,000 1.9 years 31% 27% Questions: 1) Create a cash flow framework by year and then calculate NPV, IRR, Payback, MIRR.P 2) Should you launch the line extension? Why? 3) What is the risk associated with this project? How do you measure that risk? 4) What do you know for certain about your forecast? How often will project assumptions change? 5) What if the sales forecast changes to 10% below the original estirate & the equipment costis 10% higher? % 6) Are EVA/ROIC metrice appropriate in this case? 7) How should you handle inflation? WapLLA DUYULLY DIV9000 IVWIVII Crystal Lake Company is considering launching a product line extension - a 'new and improved version with enhanced product features and enviromentally friendly packaging. Below are the basic assumptions 1980ciated with the new product line extension: Year 0 1 7 & Fquipment NWC (S0000 30000) $1,500,000,000 $ 120.000.000 $ 0,520,000,001 Data: Project life 4 Years Cost of equipment $ (1,600,0001 Year O Incr. in Inventory $ 50,000 Year 1 Incr. in AR $ 120,000 Year O Incr. in AP $ 30,000 NWC Inreases wi sales after initial investment Sales Year 1 1,500,000 Sales increase per year Depreciation $ 400,000) Operating costs 25% of sales G&A allocation from Corporate S (50,000 ) Year 1 launch costs 5 (75,000) Prior year market research cost $ (60,0001 Inflation estimate per year 3% included in sales) WACC 12% Taxes 21% Afler lax cash flows cannabilized frorn existing product line per year $ Proceeds for salvage value of equipment at end of 4 years $ Sales Operating Costs DEPR G & AAllocation Year 1 Launch Cost Before tax operating income After Tax Operating income Add: DEPR : Operating cash flow Accounts recieveable Terminal Cash Flow Net Cash Flow Oummulative Cash Flow Present Valuee.CF NPV (1487209+1620000/1620000 Fi Payback IRR MIRR $ $ $ $ $ $ $ $ $ $ 1.500,000 $ 1,505,000 $ 1,717,350 $ 1,537.565 (375,000 $ 4401,250 $ 429,3381 159,3911 (400,000 $ (400,000 $ 400,000 $ ( (400,000 150,000 $ 150,000 $ 150,000 $ 150,0001 175,0001 600,000 $ 753,750 S 838,013 S 928,173 474,000 $ 595,463 $ 562,030 $ 733,257 400,000 $ 400,000 $ 400,000 $ 874,000 $ 995,463 $ 1,062.030 $ 1,133,257 (120,0001 $ 258,500 754.000 $ 995,463 $ 1,062,090 1,391,757 (366,000 $ 129 463 $ 1,191,492 $ $ 2,583,249 673,214 $ 793,577 S 755,932 $ 994.497 400.000 $1,620,000.00 $ $ 11,520,000.00 $ $0.620,000.00 $ $ 713,883.60 $ 1.92 50,000 150,000 1.9 years 31% 27% Questions: 1) Create a cash flow framework by year and then calculate NPV, IRR, Payback, MIRR.P 2) Should you launch the line extension? Why? 3) What is the risk associated with this project? How do you measure that risk? 4) What do you know for certain about your forecast? How often will project assumptions change? 5) What if the sales forecast changes to 10% below the original estirate & the equipment costis 10% higher? % 6) Are EVA/ROIC metrice appropriate in this case? 7) How should you handle inflation