Part III: Cash Flow Estimation

Use this information to answer questions 18 25

BearKat Enterprises is considering a project where they will make high end designer face masks. They can buy the equipment they need to make the face masks for $250,000 plus another $20,000 for training and installation. They will have to increase inventory by $17,000 and accounts payable will increase $3,000. They think they can sell 23,000 masks a year at a price of $6.50 each for 4 years. The estimate variable costs at 52% of revenue. They follow a four years MACRS schedule for depreciation with the following depreciation rates:

Year 1: 33%

Year 2: 45%

Year 3: 15%

Year 4: 7%

They believe the equipment has a salvage value of $45,000. BearKat Enterprises has a tax rate of 21%. And a WACC of 7.1%. Once the project is done the additional inventory will not need to be purchased and the accounts payable balance will be paid.

Part IV: Sensitivity Analysis

Use this information to answer questions 26 30.

BearKat Enterprises has a WACC of 7.1%

BearKat Enterprises wants you to do a sensitivity analysis where you increase the mask price by 10% and decrease it by 10%. Also see what happens when you increase the variable costs by 10% and decrease them by 10%.

1. Use the information from part IV to answer this.

   What is the NPV of the project if the price of the masks is increased by 10%?

   	A.	-$30,956.77
   	B.	$4,015.85
   	C.	$14,063.71
   	D.	$22,483.93

2. Use the information from part IV to answer this.

   What is the NPV of the project if the price of the mask is decreased by 10%?

   	A.	-$15,182.38
   	B.	-$24,254.23
   	C.	$10,566.77
   	D.	$26,789.76

3. Use the information from part IV to answer this.

   What is the NPV of the project if the variable cost to make the mask is decreased by 10%?

   	A.	-$25,702.84
   	B.	-$32,123.44
   	C.	$22,483.93
   	D.	$15,660.29

4. Use the information from part IV to answer this.

   What is the NPV of the project if the variable cost to make the mask is increased by 10%?

   	A.	-$25,702.84
   	B.	-$32,123.44
   	C.	-$15,182.38
   	D.	-$25,850.81