Book2.xlsx - Solution Chapter Problem 11 18 Estimating Cash...

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Solution Chapter: 11 Estimating Cash Flows and Analyzing Risk Problem: 18 a. Develop a spreadsheet model, and use it to find the project’s NPV, IRR, and payback. Input Data (in thousands of dollars) Equipment cost $10,000 Key Results: Net operating working capital/Sales 10% NPV = $3,463 First year sales (in units) 1,000 IRR = 21.1% Sales price per unit $24.00 Payback = 2.90 Variable cost per unit (excl. depr.) $17.50 Nonvariable costs (excl. depr.) $1,000 Market value of equipment at Year 4 $500 Tax rate 40% WACC 10% Inflation in prices and costs 3.0% Estimated salvage value at year 4 $500 Intermediate Calculations 0 1 2 Units sold 1,000 1,000 Sales price per unit (excl. depr.) $24.00 $24.72 Variable costs per unit (excl. depr.) $17.50 $18.03 Nonvariable costs (excl. depr.) 1,000 1,030 Sales revenue $24,000 $24,720 Required level of net operating working capital $2,400 $2,472 $2,546 Basis for depreciation $10,000 Annual equipment depr. rate 20.00% 32.00% Annual depreciation expense $2,000 $3,200 Ending Bk Val: Cost – Accum Dep'rn $10,000 $8,000 $4,800 Salvage value Profit (or loss) on salvage Tax on profit (or loss) Webmasters.com has developed a powerful new server that would be used for corporations’ would cost $10 million at Year 0 to buy the equipment necessary to manufacture the server. T require net working capital at the beginning of each year in an amount equal to 10% of the ye example, NWC 0 = 10%(Sales 1 ). The servers would sell for $24,000 per unit, and Webmasters b costs would amount to $17,500 per unit. After Year 1, the sales price and variable costs will i rate of 3%. The company’s nonvariable costs would be $1 million at Year 1 and would increa The server project would have a life of 4 years. If the project is undertaken, it must be con years.
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