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Webmasters.com has developed a powerful new server that would be used for corporations' Internet activities. It would cost $10 million to buy the equipment necessary to manufacture the server, and it would require net operating working capital equal to S2 million. The servers would sell for $22,000 per unit, and Webmasters believes that variable costs 10 would amount to S17,000 per unit. After the first year, the sales price and variable costs would increase at the inflation 11 rate of 3%. The company's fixed costs would be $1 million per year, and would increase with inflation. It would take 12 one year to buy the required equipment and set up operations, and the server project would have a life of 4 years. If the 13 project is undertaken, it must be continued for the entire 4 years. Also, the project's returns are expected to be highly 14 correlated with returns on the firm's other assets. The firm believes it could sell 1,500 units per year 15 16 The equipment would be depreciated over a 7-year period, using MACRS rates. The estimated market value of the 17 equipment at the end of the project's 4-year life is $1.5 million. Webmasters, federal-plus-state tax rate is 40%. Its 18 | cost of capital is 10% for average risk projects. 19 20 21 a. Develop a spreadsheet model and use it to find the project's NPV, IRR, and payback. 24 25 Part 1. Input Data (in thousands of dollars) 26 Key Output: NPV- IRR MIRR Equipment cost 28 NOWC needed 29 First year sales (in units) 30 Sales price per unit 31 Variable cost per unit 32 Fixed costs Market value of equipment in Year 4 Tax rate WACC Inflation 34 Part 2. Depreciation and Amortization Schedule 35 Year Years Accum'd Initial Cost Depr 37 Equipment Depr'n Rate 38 Equipment Depr'n, Dollars 39 Ending Bk Val: Cost Accum Dep'rn 40 41 Part 3. Net Salvage Values, in Year 4 42 Estimated Market Value in Year 4 43 Book Value in Year 4 44 Expected Gain or Loss 45 Taxes paid or tax credit 46 Net cash flow from salvage Equipment 48 Part 4. Projected Net Cash Flows (Time line of annual cash flows) 49 50 Investment Outlays at Time Zero: 51 Equipment 52 NOWC needed Years 54 Operating Cash Flows over the Project's Life 55 Units sold 56 Sales price per unit 57 Variable costs per unit 58 58 59 Sales revenue 60 Variable costs 61 Fixed operating costs 62 Depreciation (equipment) 63 Oper. income before taxes (EBIT) 64 Taxes on operating income (40%) 65 Net Operating Profit After Taxes (NOPAT) 66 Add back depreciation 67 Operating cash flow 68 69 erminal Year Cash Flows: 70 Recoverv of NOW 71 72 Terminal Year Cash Flows: 73 Net salvage value 74 75 Net Cash Flow (Time line of cash flows) 76 77 Part 5. Key Output: Appraisal of the Proposed Project 78 7 9 Net Present Value (at 1096) 80 IRR 81 MIRR 82 83 Payback (See calculation below) 84 85 Data for Payback Years 86 87 Cumulative CF (Based on Row7 IF Function to find payback