Please show XL work and how you plugged it in thanks.

4 12 13 5 Webmasters.com has developed a powerful new server that would be used for corporations' Internet 6 activities. It would cost $10 million at Year 0 to buy the equipment necessary to manufacture the server, 7 The project would require net working capital at the beginning of each year in an amount equal to 10% of 8 the year's projected sales; for example, NWC, = 10%(Sales.). The servers would sell for $24,000 per unit, 9 and Webmasters believes that variable costs would amount to $17,500 per unit. After Year 1, the sales 10 price and variable costs will increase at the inflation rate of 3%. The company's nonvariable costs would 11 be $1 million at Year 1 and would increase with inflation. The server project would have a life of 4 years. If the project is undertaken, it must be continued for the 14 entire 4 years. Also, the project's returns are expected to be highly correlated with returns on the firm's 15 other assets. The firm believes it could sell 1,000 units per year. 16 17 The equipment would be depreciated over a 5-year period, using MACRS rates. The estimated market 18 value of the equipment at the end of the project's 4-year life is $500,000. Webmasters' federal-plus-state tax rate is 40%. Its cost of capital is 10% for average-risk projects, defined as projects with a coefficient of 19 variation of NPV between 0.8 and 1.2. Low-risk projects are evaluated with a WACC of 8%, and high-risk 20 projects at 13% 21 22 a. Develop a spreadsheet model, and use it to find the project's NPV, IRR, and payback, 23 24 Key Output NPV - 25 Part 1. Input Data (in thousands of dollars) IRR 26 MIRR 27 Equipment cost $10,000 28 Net WC/Sales 10% Market value of equipment at Year 4 $500 29 First year sales (in units) 1,000 40% 30 Sales price per unit $24.00 WACC 10% 31 Variable cost per unit $17.50 Inflation 3.0% 32 Nonvariable costs $1,000 33 Tax rate 4 Accum'd Depr'n 3 4 19.20% 11.52% A B D E F 34 Part 2. Depreciation and Amortization Schedu Years 35 Year Initial Cost 2 36 37 Equipment Depr'n Rate 20.00% 32.00% 38 Equipment Depr'n, Dollars $2,000 39 Ending Bk Val: Cost - Accum Dep 10,000 40 41 Part 3. Net Salvage Values, in Year 4 Equipment 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 47 48 Part 4. Projected Net Cash Flows (Time line of Annual Cash Flows) 49 Years 0 1 50 Investment Outlays at Time Zero: 51 Equipment ($10,000) 52 53 Operating Cash Flows over the Project's Life: 54 Units sold 1,000 55 Sales price $24.00 56 Variable costs $17.50 57 58 Sales revenue $24,000 59 Variable costs 17,500 60 Nonvariable operating costs 1.000 61 Depreciation (equipment) 2,000 62 Oper. Income before taxes (EBIT) $3,500 63 Taxes on operating income (40%) 1,400 64 After-tax operating income $2,100 65 Add back depreciation 2,000 Operating cash flow $4,100 2 3 66 67 2 3 Net cash flow from salvage Part 4. Projected Net Cash Flows (Time line of Annual Cash Flows) Years 0 Investment Outlays at Time Zero: Equipment ($10,000) 3 Operating Cash Flows over the Project's Life: 4 Units sold 1,000 5 Sales price $24.00 56 Variable costs $17.50 57 58 Sales revenue $24,000 59 Variable costs 17,500 80 Nonvariable operating costs 1,000 61 Depreciation (equipment) 2,000 62 Oper income before taxes (EBIT) $3,500 63 Taxes on operating income (40%) 1,400 64 After-tax operating income $2,100 65 Add back depreciation 2,000 66 Operating cash flow $4,100 67 Terminal Year Cash Flows: 69 Required level of net working capital $2,400 70 Required investment in NWC ($2,400) 71 72 Terminal Year Cash Flows: 73 Net salvage value 74 75 Net Cash Flow (Time line of cash flows) ($12,400) $4,100 76 68 0 50 50 SO B C D E F G K Part 5. Key Output: Appraisal of the Proposed Project 2 3 Net Present Value (at 10%) IRR 1 MIRR 2. 3 Payback (See calculation below) 14 35 Data for Payback Years Net cash flow Cumulative CF Part of year required for payback 89 90 91 b. Now conduct a sensitivity analysis to determine the sensitivity of NPV to changes in the sales price, 92 variable costs per unit, and number of units sold. Set these variables' values at 10% and 20% above and below their 95 Part 6. Evaluating Risk: Sensitivity Analysis 36 37 88 93 94 OR OOO B E F H 94 95 Part 6. Evaluating Risk: Sensitivity Analysis 96 97 1. Sensitivity of NPV to Changes in Inputs. Here we use Excel "Data Tables" to find NPVs at different unit sales, 98 WACC, variable costs, sales price and nonvariable costs--changing one variable at a time, holding 99 100% Deviation 1st YEAR UNIT SALES % Deviation WACC 101 from Units NPV from NPV 102 Base Case Sold $O Base Case WACC $0 103 -20% 800 0 -20% 8.0% 0 104 -10% 900 0 -10% 9.0% 0 105 0% 1,000 0% 10.0% 0 106 10% 1,100 10% 11.0% 0 107 20% 1,200 20% 12.0% 0 108 109% Deviation VARIABLE COST % Deviation SALES PRICE 110 from Variable NPV from Sales NPV 111 Base Case Costs SO Base Case Price $0 112 -20% $14.00 -20% $19.20 0 113 -10% 15.75 -10% 21.60 0 114 0% 17.50 0% 24.00 0 115 10% 19.25 10% 26.40 0 116 20% 21.00 20% 28.80 0 117 Note about data tables. The data in the column input 118% Deviation NONVARIABLE COST should NOT be input using a cell reference to the column 119 from Fixed NPV input cell. For example, the base case number of units sold in Cell B105 should be the number 1000; you should NOT 120 Base Case Costs SO have the formula =D29 in that cell. This is because you'll 121 -20% $800 0 use D29 as the column input cell in the data table and if -10% 900 Excel tries to iteratively replace Cell D29 with the formula 0 =D29 rather than a series of numbers, Excel will calculate 123 0% 1.000 the wrong answer. Unfortunately, Excel won't tell you that 124 10% 1.100 0 there is a problem, so you'll just get the wrong values for Build a Model POOOOO 122 OO G111 fx =D79 A B C D 118% Deviation NONVARIABLE COST 119 from Fixed NPV 120 Base Case Costs SO 121 -20% $800 0 122 -10% 900 0 123 0% 1,000 0 124 10% 1,100 0 125 20% 1,200 0 126 127 EF should NOT be input using a cell reference to the column input cell. For example, the base case number of units sold in Cell B105 should be the number 1000; you should NOT have the formula =D29 in that cell. This is because you'll use D29 as the column input cell in the data table and if Excel tries to iteratively replace Cell D29 with the formula =D29 rather than a series of numbers, Excel will calculate the wrong answer. Unfortunately, Excel won't tell you that there is a problem, so you'll just get the wrong values for the data table! 0 128 Sensitivity Analysis NPV (5) Sales Price Units Sold Nonvariable cost 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 140 11,000 9,000 7,000 5.000 3,000 1,000 (1.000) 2046 (3.000) (5,000) (7.000) WACC -10% 109 2096 Variable Cost l'ereentage Deviation from Base Deviation NPV at Different Deviations from Base 160 c. Now conduct a scenario analysis. Assume tha: there is a 25% probability that best-case conditions, 161 with each of the variables discussed in Part b being 20% better than its base-case value, will occur. There 162 is a 25% probability of worst-case conditions, with the variables 20% worse than base, and a 50% 163 probability of base-case conditions. 164 165 Part 7. Evaluating Risk: Scenario Analysis Squared 166 Deviation 167 Sales Unit Variable Times 168 Scenario Probability Price Sales Costs NPV Probability 169 170 Best Case 25% $28.80 1,200 $14.00 171 Base Case 50% $24.00 1,000 $17.50 Worst Case 25% $19.20 800 $21.00 173 174 Expected NPV = sum, prob times NPV 175 Standard Deviation = Sq Root of column H sum 176 Coefficient of Variation - Std Dev / Expected NPV 177 178 d. If the project appears to be more or less risky than an average project, find its risk-adjusted NPV, IRR, 179 and payback 172 0.8 to 188 189 190 d. If the project appears to be more or less risky than an average project, find its risk-adjusted NPV, IRR, 79 and payback 80 81 CV range of firm's average-risk project: 1.2 82 Low-risk WACC = 8% 183 WACC = 10% 184 High-risk WACC = 13% 185 186 Risk-adjusted WACC = 187 Risk adjusted NPV = IRR = Payback 191 e. On the basis of information in the problem, would you recommend that the project be accepted? 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 07