The expected annual free cash flow for the GPS tracker investment from problem 3-1 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 expense 51,000

NOPAT 99,000

Plus: depreciation 100,000

Less: CAPEX

Less: working capital investment

Free cash flow 199,000

• Construct a spreadsheet model to compute free cash flow that relies on the following assumptions or estimates:
• 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.)
• If unit sales were 15% higher than the base case, what unit price would it take for the investment to achieve a zero NPV?