Nilestown Corp. currently sells 30,000 motor homes per year at $73,000 each, and 14,000 luxury motor coaches per year at $120,000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 500 of these campers per year at $19,000 each. If we introduce the new camper project, variable costs of portable campers are expected to be 44 percent of sales, and fixed costs are $2,930,000 per year. The proposed project should have a four-year life. The introduction of the new camper project requires $2,100,000 in manufacturing equipment. We would have to invest $900,000 in working capital at the start. After that, net working capital requirements would be 30 percent of sales. All working capital will be reclaimed at the end of the project.

Nilestown Corp. currently sells 30,000 motor homes per year at $73,000 each, and 14,000 luxury motor coaches per year at $120,000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 500 of these campers per year at $19,000 each. If we introduce the new camper project, variable costs of portable campers are expected to be 44 percent of sales, and fixed costs are $2,930,000 per year. The proposed project should have a four-year life. The introduction of the new camper project requires $2,100,000 in manufacturing equipment. We would have to invest $900,000 in working capital at the start. After that, net working capital requirements would be 30 percent of sales. All working capital will be reclaimed at the end of the project. 1) An independent consultant has determined that if Nilestown introduces the new campers, it should boost the sales of its existing motor homes by 270 units per year, and reduce the sales of its motor coaches by 130 units per year. What is the amount to use as the annual sales figure when evaluating this project? Why? 2) Suppose the introduction of the camper project has no impact on existing sales of motorhomes and motor coaches. Depreciation will be straight line with $100,000 salvage. Prepare a pro forma statement of comprehensive income assuming a tax rate of 35 percent. What is the projected net income per year? Statement of comprehensive income Sales $ Variable Cost $ Fixed Cost $ Depreciations EBIT $ Taxes (35%) S Net Income $ val 3) Given the assumptions in question 2, what will be the operating cash flow (OCF) per year? 4) Given the assumptions in question 2 & 3, what will be the cash flow from assets per year? Year 0 Year 1 Year 2 Year3 Year 4 OCF Changes in NWC Capital Spending CFFA 5) Given your answer in question 4, what is the payback period of this project? 6) What is the IRR of this project? 7) Assuming a 20 percent required return, what is the NPV of this project? Should we undertake the project