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The expected annual free cash flow for a GPS tracker investment is computed as follows: REVENUES $ 1,250,000 Variable Cost 750,000 Fixed Expenses 250,000 GROSS
The expected annual free cash flow for a GPS tracker investment is computed as follows:
REVENUES | $ 1,250,000 |
Variable Cost | 750,000 |
Fixed Expenses | 250,000 |
GROSS PROFIT | $ 250,000 |
Depreciation | 100,000 |
NET OPERATING INCOME | $ 150,000 |
Income Tax | 51,000 |
NOPAT | $ 99,000 |
Plus: Depreciation | 100,000 |
Less: CAPEX | - |
Less: Working Capital Investment | - |
Free Cash Flow | $ 199,000 |
A. Construct a spreadsheet model to compute free cash flow that relies on the following assumptions or estimates:
Base Case Estimates | Values |
Initial Cost of Equipment | $ 1,000,000 |
Project and Equipment Life | 10 years |
Salvage Value of Equipment | 0 |
Working Capital Requirement | 0 |
Depreciation Method | Straight-line |
Depreciation Expense | $ 100,000 |
Discount Rate | 10 % |
Tax Rate | 34 % |
Unit Sales | 10,000 |
Price per Unit | $ 125 |
Variable Cost per Unit | $ 75 |
Fixed Costs | $ 250,000 |
B. What level of annual unit sales does it take for the investment to achieve a zero NPV? Use your spreadsheet model to answer this question (Hint: Use the Goal seek function in Excel).
C. If unit sales were 15% higher than the base case, what unit price would it take for the investment to achieve a zero NPV?
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