Problem 2 Managers at GoPro are considering entering Al-augmented camera market that they expect to be strong over the next five years. To enter the market successfully, GoPro will need to build a manufacturing facility, spend money on design, marketing etc. Is the project worth undertaking? The estimates are as follows. The cost of building a new manufacturing facility is $220 million and its salvage value after 5 years is only $10 million. The initial (year 1 ) sales are estimated at 7,000,000 units. The inflation rate, real cost of capital and tax rate are assumed to be constant over time. Assume that Sales Revenue per unit, Variable cost and Cash Fixed cost grow over time at the rate of inflation. All other given/assumed variables are shown in the Problem 2.2 sheet. Answer the following questions: (a) Complete cash flow forecasts in sheet Problem 2.2 (4 points) (b) What is the Net Present Value of this project? (3 points) (c) Would you invest in the project on the basis of its NPV? Explain (3 points) (d) What is the formula in cell C27 of Problem 2.2 sheet? ( 3 points) (e) What is the formula in cell G38 of Problem 2.2 sheet? (3 points) (f) What is the formula in cell G4 of Problem 2.2 sheet? (3 points) (g) Assuming that year 2 sales growth rate is 30%, what level of unit sales in year 1 will be just sufficient to accept this project? (5 points) Problem 2 Managers at GoPro are considering entering Al-augmented camera market that they expect to be strong over the next five years. To enter the market successfully, GoPro will need to build a manufacturing facility, spend money on design, marketing etc. Is the project worth undertaking? The estimates are as follows. The cost of building a new manufacturing facility is $220 million and its salvage value after 5 years is only $10 million. The initial (year 1 ) sales are estimated at 7,000,000 units. The inflation rate, real cost of capital and tax rate are assumed to be constant over time. Assume that Sales Revenue per unit, Variable cost and Cash Fixed cost grow over time at the rate of inflation. All other given/assumed variables are shown in the Problem 2.2 sheet. Answer the following questions: (a) Complete cash flow forecasts in sheet Problem 2.2 (4 points) (b) What is the Net Present Value of this project? (3 points) (c) Would you invest in the project on the basis of its NPV? Explain (3 points) (d) What is the formula in cell C27 of Problem 2.2 sheet? ( 3 points) (e) What is the formula in cell G38 of Problem 2.2 sheet? (3 points) (f) What is the formula in cell G4 of Problem 2.2 sheet? (3 points) (g) Assuming that year 2 sales growth rate is 30%, what level of unit sales in year 1 will be just sufficient to accept this project? (5 points)
