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The relevant CCA rate for capital expenditures is 12%. Assume assets are never sold. c. Rather than assuming cash flows for the project are constant,
The relevant CCA rate for capital expenditures is 12%. Assume assets are never sold. c. Rather than assuming cash flows for the project are constant, management would like to explore the sensitivity of their analysis to possible growth in revenues and operating expenses. Specifically, management would like to assume that revenues, manufacturing expenses, and marketing expenses are as given in the table for year 1 and grow by 2% starting in year 2 . Management also plans to assume that the initial capital expenditures (and therefore CCA ), additions to working capital, and continuation value remain as initially specified in the table. What is the NPV of this project under these alternative assumptions? How does the NPV change if the revenues and operating expenses grow by 5% per year rather than by 2% ? d. To examine the sensitivity of this project to the discount rate, management would like to compute the NPV for different discount rates. Create a graph, with the discount rate on the x-axis and NPV on the v-axis for discon unt rates rancina from 5% tn 30% For what rances of discou unt rates dnes the nroies.t have a nositive. NPV? c. What is the NPV if revenues, manufacturing expenses, and marketing expenses grow by 2% and initial capital expenditures, additions to working capital, and continuation value remain the same? NPV is $ million. (Round to two decimal places.)
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