Webmasters.com has developed a powerful new server that would be used for corporatioas' Internet activities. It would cost S10 million to buy the equipmeat necessary to manufacture the server, and it would require aet working capital equal to 10% of sales. The servers would sell for $24,000 per unit, and Webmasters believes that variable costs would amout to $17,500 per unit. After the first year, the sales price and variable costs would increase at the inflation rate of 39 \%. The company's fixed costs be $1 million per year and increase with inflation. It would take oae year to br. required equipment and set up operations, and the server project would have a life of 4 years. If the project is undertakea, if must be contianed for the eatire 4 years. Also, the project's returns are expected to be highty correlated with returas on the firm's other assets. The firm believes it could sell 1,000 units per year. The equipment would be depreciated over a 5.year period, using MACRS rates. The estimated market value of the equipment at the end of the project's 4 -year life is $500,000. Webmasters' federal plus state tax rate is 40% b. Its cost of capitat is 10% for average risk projects, defined as projects with a coeflicient of variatiou for NPV between 0.8 and 1.2 . Low risk projects are evaluated with a WACC of 8%, and high risk projects at 13%. a. Develop a spreadsheet model and use it to fiud the project's NPV, IRR, and payback. \begin{tabular}{|c|c|c|c|} \hline \multirow{2}{*}{\begin{tabular}{l} 108 \\ 109 \end{tabular}} & \multirow{2}{*}{\begin{tabular}{c} % Deviation \\ from \end{tabular}} & \multicolumn{2}{|c|}{ VARIABLE COSTS } \\ \hline & & Variable & NPV \\ \hline 110 & Base Case & Costs & \\ \hline 111 & 20% & & \\ \hline 112 & 10% & & \\ \hline 113 & 0% & & \\ \hline 14 & 10% & & \\ \hline & 20% & & \\ \hline \end{tabular} \begin{tabular}{|r|l|} \hline \begin{tabular}{c} \% Deviation \\ from \end{tabular} & \multicolumn{2}{|c|}{ SALES PRICE } \\ \cline { 2 - 3 } Base Case & Sales \\ \hline 20% & Price \\ \hline 10% & \\ \hline 0% & \\ \hline 10% & \\ 20% & \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|} \hline 117 & \% Deviation & FIX & cosTs \\ \hline 18 & & Fixed & NPV \\ \hline 19 & Base Case & Costs & \\ \hline 20 & 20% & & \\ \hline 21 & 10% & & \\ \hline & 0% & & \\ \hline & 10% & & \\ \hline & 20% & & \\ \hline \end{tabular} d. If the project appears to be more or less risky than an average project, find its risk-adjusted NPV, IRR, and payback. With the high CV, we must re-evaluate the project using a higher WACC, 13%. That results in: Risk adjusted NPV = IRR = Payback - b. Now conduct a sensitivity analysis to determine the sensitivity of NPV to changes in the sales price, variable costs per unit, and number of units sold. Set these variables' values at 10% and 20% above and below their base case values. Include a graph in your analysis. Part 6. Evaluating Risks Seasitivity Analysis I. Sensitivity. of NPV to Changes in Inputs, Here we use an Excel "Data Table" to find NPV different unit sales, bolding other thing constant. conduct a scenario analysis. Assume that there is a 25% probability that "best case" conditions, with each of rariables discussed in Part b being 20% better than its base case value, will occur. There is a 25% probability vorst case" conditions, with the variables 20% worse than base, and a 50% probability of base case conditions. a. Develop a spreadsheet model and use it to fiad the project's NPV, IRR, and payback