Years 0 2 3 4 I. Investment Outlays Equipment Cost Shipping and Installation CAPEX 200,000 40,000 240,000 Increase in Inventory Increase in Accounts Payable Change in NWC 25,000 -5,000 20,000 II. Project Operating Cash Flows Unit Sales Price per Unit Total Revenues Operating Costs (w/o deprm) Depreciation Total Costs EBIT (Opearting Income) Taxes on operating income Profit after taxes Add back depreciation Profit after taxes + Depn 100,000 100,000 100,000 100,000 2 2 2 2 200,000 200,000 200,000 200,000 120,000 120,000 120,000 120,000 32,250 152,250 10,750 96,750 216,750 -16,750 -3,518 75,250 195,250 130,750 69,250 4,750 47,750 14,543 998 10,028 54,708 3,753 -13,233 37,723 10,750 65,458 32,250 69,973 96,750 75,250 83,518 79,003 III. Project Termination Cash Flows Salvage Value Tax on salvage value After Tax salvage value Recover of NWC 25,000 5,250 19,750 20,000 105,208 Project Free Cash Flows PV Factor 10% 69,973 -260,000 83,518 79,003 0.8264 0.6830 1.0000 0.9091 0.7513 71,858 75,925 -260,000 52,571 65,291 Discounted Cash Flow Part (B) (3 points) Calculate the project's NPV, IRR, MIRR, and payback. Do these indicators suggest that the project should be accepted? Explain. Part (C) (3 points) 1. What is sensitivity analysis? 2. How would you perform a sensitivity analysis on the unit sales, salvage value. and WACC for the project? Assume that each of these variables deviates from its base-case, or expected value by plus or minus 10%, 20%, and 30% Explain how you would calculate the NPV, IRR. MIRR, and payback for each case. 3. What is the primary weakness of sensitivity analysis? What are its primary advantages? Years 0 2 3 4 I. Investment Outlays Equipment Cost Shipping and Installation CAPEX 200,000 40,000 240,000 Increase in Inventory Increase in Accounts Payable Change in NWC 25,000 -5,000 20,000 II. Project Operating Cash Flows Unit Sales Price per Unit Total Revenues Operating Costs (w/o deprm) Depreciation Total Costs EBIT (Opearting Income) Taxes on operating income Profit after taxes Add back depreciation Profit after taxes + Depn 100,000 100,000 100,000 100,000 2 2 2 2 200,000 200,000 200,000 200,000 120,000 120,000 120,000 120,000 32,250 152,250 10,750 96,750 216,750 -16,750 -3,518 75,250 195,250 130,750 69,250 4,750 47,750 14,543 998 10,028 54,708 3,753 -13,233 37,723 10,750 65,458 32,250 69,973 96,750 75,250 83,518 79,003 III. Project Termination Cash Flows Salvage Value Tax on salvage value After Tax salvage value Recover of NWC 25,000 5,250 19,750 20,000 105,208 Project Free Cash Flows PV Factor 10% 69,973 -260,000 83,518 79,003 0.8264 0.6830 1.0000 0.9091 0.7513 71,858 75,925 -260,000 52,571 65,291 Discounted Cash Flow Part (B) (3 points) Calculate the project's NPV, IRR, MIRR, and payback. Do these indicators suggest that the project should be accepted? Explain. Part (C) (3 points) 1. What is sensitivity analysis? 2. How would you perform a sensitivity analysis on the unit sales, salvage value. and WACC for the project? Assume that each of these variables deviates from its base-case, or expected value by plus or minus 10%, 20%, and 30% Explain how you would calculate the NPV, IRR. MIRR, and payback for each case. 3. What is the primary weakness of sensitivity analysis? What are its primary advantages
