Ch 11-18 Build a Model
Develop a spreadsheet model, and use it to find the project’s NPV, IRR, and payback.
Input Data (in thousands of dollars)
Market value of equipment at Year 4
First year sales (in units)
Sales price per unit
Variable cost per unit
Depreciation and Amortization Schedule
Equipment Depr'n Rate
Equipment Depr'n, Dollars
Net Salvage Values, in Year 4
Estimated Market Value in Year 4
Book Value in Year 4
Expected Gain or Loss
Taxes paid or tax credit
Net cash flow from salvage
Webmasters.com has developed a powerful new server that would be used for corporations’ Internet activities.
cost $10 million at Year 0 to buy the equipment necessary to manufacture the server.
The project would require net
working capital at the beginning of each year in an amount equal to 10% of the year's projected sales; for example, NWC
The servers would sell for $24,000 per unit, and Webmasters believes that variable costs would amount to
$17,500 per unit.
After Year 1, the sales price and variable costs will increase at the inflation rate of 3%.
nonvariable costs would be $1 million at Year 1 and would increase with inflation.
The server project would have a life of 4 years.
If the project is undertaken, it must be continued for the entire 4 years.
Also, the project's returns are expected to be highly correlated with returns on the firm's other assets.