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chapter 11 (Autosaved)

# chapter 11 (Autosaved) - Chapter 11 Ch 11-18 Build a Model...

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Page 1 4/16/2010 Chapter 11. Ch 11-18 Build a Model a. Develop a spreadsheet model, and use it to find the project’s NPV, IRR, and payback. Key Output: NPV = \$2,387 Part 1. Input Data (in thousands of dollars) IRR = 21.09% MIRR = 18.08% Equipment cost \$10,000 Net WC/Sales 10% Market value of equipment at Year 4 \$500 First year sales (in units) 1,000 Tax rate 40% Sales price per unit \$24.00 WACC 13% Variable cost per unit \$17.50 Inflation 3.0% Nonvariable costs \$1,000 Part 2. Depreciation and Amortization Schedule Years Accum'd Year Initial Cost 1 2 3 4 Depr'n Equipment Depr'n Rate 20.0% 32.0% 19.0% 12.0% Equipment Depr'n, Dollars \$2,000 \$3,200 \$1,900 \$1,200 \$8,300 \$1,700 Part 3. Net Salvage Values, in Year 4 Equipment Estimated Market Value in Year 4 \$500 Book Value in Year 4 1,700 Expected Gain or Loss -1,200 Taxes paid or tax credit -480 Net cash flow from salvage \$980 Webmasters.com has developed a powerful new server that would be used for corporations’ Internet activities. It would 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 0 = 10%(Sales 1 ). 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%. The company’s nonvariable costs would be \$1 million at Year 1 and would increase with inflation.

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chapter 11 (Autosaved) - Chapter 11 Ch 11-18 Build a Model...

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