Pantheon Enterprises is a well-developed large market cap high tech firm residing in Boston, Massachusetts. It specializes in the development, manufacture, and licensing of a line of servers called Rajun. Its main competitor is Cisco which therefore necessitates that Pantheon develop a market niche and focus on being as efficient as possible!

Considering the need to be on the cutting edge of innovation for competitive reasons Pantheon decided to incur $4,381,200 in research and development to promote its new product called Trilux and make it compatible with the balance of its product line and hence start to develop an environment with increasing scale economies. Along with this, Pantheon decided to spend $2,723,700 to hire a market research firm Know-It-All & Associates (KIA). Initially, KIA conducted marketing tests in 62 economic zones in the U.S, Eastern Europe, Canada, and several areas of Africa to determine an expected future sales level in both dollars and units that Pantheon would expect to realize.

The cost of the equipment to develop the new Trilux server is approximately $83,298,000 which will be depreciated on a five-year MACRS schedule. At the end of five years it is expected that the reasonable salvage value of the investment will be 9 percent of its original cost. Pantheon can manufacture Trilux for which the variable costs per unit are expected to come in at $308 while overall fixed costs would be $9,856,000 per year. At this point FMP estimates that sales of Trilux will be 116,000, 129,000, 145,000, 121,000, and 89,000 units respectively for the next five years with a sales price of $732 per unit.

Sales of Rajun are expected to come in at 107,500, and 91,200 units respectively over the next two years if Trilux is NOT developed. Of course, erosion is expected if Trilux is developed as it would likely cannibalize the original Rajun product. It is expected that Trilux would reduce Rajun sales by 31,750 units per year for the next two years and market pressure would force the Rajun product to be discounted from its original price of $457/unit to $249/unit. Variable cost/unit of Rajun is $198 and fixed costs currently are $4,248,500 on an annual basis.

Working capital to support the Trilux will be approximately 21.25% of yearly sales for the life of the product which is expected to end after five years for which net working capital will be released back to Pantheon. The timing of the working capital will be exactly the same as the cash inflows which will be at the end of each year.

Lastly, the marginal corporate income tax rate is 39.675% and management dictates that the required rate of return for this project will be 15.95%. You are to determine the NPV and the IRR of the project and give your recommendation to management as to whether or not the company should proceed with the project. In addition, you are to take the initiative and make a recommendation as to what you would reasonably change with respect to the project to make it more lucrative for Pantheon.

Your presentation must be in the form of an Excel spreadsheet

***WILL UPVOTE***