****Please answer question #10****

8. Please go back to the original spreadsheet numbers the original net present value is $72,591. Please run a net present value breakeven using this original data and record the net present value level of sales here ___________. Prior to beginning this project, the company can increase the initial outlay by $150,000. This additional upfront acquisition stage cost would lower the variable costs to 30% of sales and increase the disposition value to $550,000. What is the new net present value____________, and the new net present value breakeven level of sales___________, and would this be a good move for the company?

9. Please go back to the original spreadsheet numbers. As an alternative before beginning this project, the company can reduce the initial outlay by $300,000. This would increase the variable costs to 50% of sales and decrease the disposition value to $400,000. What is the new net present value____________, and the new net present value breakeven level of sales___________, and would this be a good move for the company?

10. Going back to the prior two problems which of these alternatives is better for the company? The original method, the modification suggested in problem 8, or the modification in problem 9? Why?

\begin{tabular}{|c|c|c|c|c|c|c|c|c|c|} \hline Years & 0 & 1 & 2 & 3 & 4 & 5 & 6 & 7 & 8 \\ \hline \multicolumn{10}{|l|}{ Acquisition stage cash flow: } \\ \hline Initial Outlay & (800,000) & & & & & & & & \\ \hline \multicolumn{10}{|l|}{ Operating stage cash flow: } \\ \hline Sales & & 600,000 & 600,000 & 600,000 & 600,000 & 600,000 & 600,000 & 600,000 & 600,000 \\ \hline Fixed Cost & & (220,000) & (220,000) & (220,000) & (220,000) & (220,000) & (220,000) & (220,000) & (220,000) \\ \hline Variable Cost & & (240,000) & (240,000) & (240,000) & (240,000) & (240,000) & (240,000) & (240,000) & (240,000) \\ \hline Depreciation expense & & (68,000) & (68,000) & (68,000) & (68,000) & (68,000) & (68,000) & (68,000) & (68,000) \\ \hline Taxable income & & 72,000 & 72,000 & 72,000 & 72,000 & 72,000 & 72,000 & 72,000 & 72,000 \\ \hline Taxes & & (20,160) & (20,160) & (20,160) & (20,160) & (20,160) & (20,160) & (20,160) & (20,160) \\ \hline After tax income & & 51,840 & 51,840 & 51,840 & 51,840 & 51,840 & 51,840 & 51,840 & 51,840 \\ \hline Add back depreciation & & 68,000 & 68,000 & 68,000 & 68,000 & 68,000 & 68,000 & 68,000 & 68,000 \\ \hline Operating cash flows & & 119,840 & 119,840 & 119,840 & 119,840 & 119,840 & 119,840 & 119,840 & 119,840 \\ \hline Disposition stage cash flow: & & & & & & & & & 500,000 \\ \hline Total cash flow & (800,000) & 119,840 & 119,840 & 119,840 & 119,840 & 119,840 & 119,840 & 119,840 & 619,840 \\ \hline Present Value & 872,591 & & & & & & & & \\ \hline Net Present Value & 72,591 & & & & & & & & \\ \hline \end{tabular}