Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please use and show execl formulas ayout References Mailings Review View Help 1. You will decide on a new project with a 5-year life and

please use and show execl formulas image text in transcribed
ayout References Mailings Review View Help 1. You will decide on a new project with a 5-year life and following data You expect sales as $10,000 in the first year of operation but the sales in subsequent years are uncertain. Estimated sales growth is assumed to be normally distributed with a mean of 3% anda standard deviation of 2. Costs of goods Sold (COGS) each year are uncertain as well but are assumed to be a percentage of sales. COGS as a percentage of sales is assumed to be distributed normally with a mean of 40% and a standard deviation of 6% Fixed costs will be $3,300 per year. The project will require an initial investment in net working capital of 5400. Beginning at year 1, NWC is 10% of sales. The entire NWC investment (across all years) will be recovered at the end of the project. To operate the project, a new piece of equipment must be purchased at a cost of $10,000. The equipment will be depreciated using straight line depreciation. The equipment will have 0 salvage value by the end of the project. The cost of capital facing the firm is 10% Tax rate is 25% Mean Std Dev Sales Growth COGS/Sales 40% $3,300 109 Fixed Cost NWC as of Sales Tax Rate Cost of Capital 25% 10% Tasks: a) Calculate the NPV of the project while capturing the uncertainty in sales and costs of goods sold. b) Simulate the NPV 1000 times using a datatable. c) Calculate mean, standard deviation, min and max values for projected NPVS d) Calculate the probability of positive NPV ayout References Mailings Review View Help 1. You will decide on a new project with a 5-year life and following data You expect sales as $10,000 in the first year of operation but the sales in subsequent years are uncertain. Estimated sales growth is assumed to be normally distributed with a mean of 3% anda standard deviation of 2. Costs of goods Sold (COGS) each year are uncertain as well but are assumed to be a percentage of sales. COGS as a percentage of sales is assumed to be distributed normally with a mean of 40% and a standard deviation of 6% Fixed costs will be $3,300 per year. The project will require an initial investment in net working capital of 5400. Beginning at year 1, NWC is 10% of sales. The entire NWC investment (across all years) will be recovered at the end of the project. To operate the project, a new piece of equipment must be purchased at a cost of $10,000. The equipment will be depreciated using straight line depreciation. The equipment will have 0 salvage value by the end of the project. The cost of capital facing the firm is 10% Tax rate is 25% Mean Std Dev Sales Growth COGS/Sales 40% $3,300 109 Fixed Cost NWC as of Sales Tax Rate Cost of Capital 25% 10% Tasks: a) Calculate the NPV of the project while capturing the uncertainty in sales and costs of goods sold. b) Simulate the NPV 1000 times using a datatable. c) Calculate mean, standard deviation, min and max values for projected NPVS d) Calculate the probability of positive NPV

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Pivotal Decade How The United States Traded Factories For Finance In The Seventies

Authors: Judith Stein

1st Edition

0300171501, 978-0300171501

More Books

Students also viewed these Finance questions