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Please help me analyze this and calculate what is needed. JW Cafe, Inc, is a large restaurant chain with roughly 3000 tocatlons natlonwide. W has

Please help me analyze this and calculate what is needed. image text in transcribed
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JW Cafe, Inc, is a large restaurant chain with roughly 3000 tocatlons natlonwide. W has docidod to seit ti new line of desserts called Flavor Burst loe Cream Cones. The cones will sell for \$3 each and have a variable direct materials cost of $1.45 each. The company has spent $20,000 for a marketing study that determined that each store will sell 500 cones per store during the first year. It was also estimated that those sales will double each year for 2 years. but level off at a 4% growth rate thereaffer. The marketing study also determined that 50% of the Flavor Burst Cones sold will actually cannibalize sales of its regular ice cream cones. These regular cones sell at $2 and have variable direct materials costs of 55 cents. The company will also increase food sales as a result of the new dessert. It is estimated that 20% of the Flavor Burst Cones cause an additional meal to be sold. The average meat sells for $10 and has variable direct materials costs of $3.50 per meal. The company has also spent $10,400 on research and development for the new cones. The machine required to produce these new cones will cost $11,000 and weight approximately 400 bs. The electricity usage of a single machine is approximately 1kWh per hour. The national average cost for electricity is 12 cents per kWh. Each store will need its own machine. This project will also require an increase in inventory corresponding to the increase in direct materials. Assume that the Days' Sales in inventory will remain at 10 days. The taxable income for the company is expected to be in excess of \$25 million before any incremental taxable income from the initiation of this product. Suppose your company has been hired as a financial consultant to JW Cafe, Inc. After researching IRS Pub. 946 (among other resources), it has been determine that either straight-line to a zero book value or 7-year MACRS depreciation methods can be used. The expected useful iffe of the machine is twelve yoart. Aftor this time, the machine will be essentialy worthless except for 45 cents/b. in scrap metal that you can get for the stainless steel. Also, assume any working capital investment is made at the beginning of the year in which it is needed and that it is fully recoverable at the end of the machine's iffe. As part of your research, you have discovered that current market data suggests a market risk premium of 8% with 90 -day T-Bills yielding 6%. WW has 231,000,9.4% coupon bonds with 25 years to maturity seling in the open market at 109% of the $1000 face value and paying semiannual coupons. W also has 8.9milion shares of common stock trading at $71.10 with a beta of 1.2 , and 451,000 shares of $100 par, 95, preferred stock seling for $77.50. Management feels like this venture is equally as risky as a typical projoct within the company. JW Cate, inc uses G. Wee Zee as its lead underwriter. G. Wee Zee charges JW spreads of 9% on new common stock issues, 7% on new preferred stock issues, and 5% on new debt issues. Assume that any NWC requirements will be financed intemally, and therefore does not require flotation costs. As part of your research, you have discovered that current market data suggests a market risk premium of 8% with 90 -day T-Bills yielding 6%. JW has 231,000,9.4% coupon bonds with 25 years to maturity selling in the open market at 109% of the $1000 face value and paying semiannual coupons. JW also has 8.9 million shares of common stock trading at $71.10 with a beta of 1.2, and 451,000 shares of $100 par, 9% preferred stock selling for $77.50. Management feels like this venture is equally as risky as a typical project within the company. JW Caft, Inc. uses G. Wee Zee as its lead underwriter. G. Wee Zee charges JW spredads of 9% on new common stock issues, 7% on new preferred stock issues, and 5% on new debt issues. Assume that any NWC requirements will be financed internally, and therefore does not require flotation costs. At this point, it is uncertain as to whether JW will have the capital available to finance this project. It is likely that the financing from this project will need to be raised externally, and if so the capital structure of the company must remain unchanged. Help management determine if this is a worthwhile venture, and if internal versus extemal financing makes any difference in the decision to invest. Suppose you feel that the quantity changes (new product in year 1,% changes of existing products, % growth of new product into perpetuity), price (new product only), variable cost (new product only), electricity cost, and scrap value are accurate to within only \pm 10 percent. Calculate a base-case NPV along with the best-case and worst-case NPVs? How sensitive is NPV to the price, quantity, and variable cost of the new product? Any additional analysis is certainly welcomed. Detail your suggestions based on your analysis. Your ability to thoroughly complete this analysis could mean a promotion and/or raise, and therefore could potentially have a significant impact on your lifelong happiness. Good luck

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