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Chapter_08

# Chapter_08 - Chapter 8 Problems 1-30 Input boxes in tan...

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Chapter 8 Problems 1-30 Input boxes in tan Output boxes in yellow Given data in blue Calculations in red Answers in green NOTE: Some functions used in these spreadsheets may require that the "Analysis ToolPak" or "Solver Add-in" be installed in Excel. To install these, click on "Tools|Add-Ins" and select "Analysis ToolPak and "Solver Add-In."

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Chapter 8 Question 1 Input area: Initial cost \$896,000 Project life 8 Units sales 100,000 Price/unit \$38.00 Variable cost/unit \$25.00 Fixed costs \$900,000 Tax rate 35% Required return 15% b. New quantity for calculation 105,000 Projected sales change (500) c. New VC for calculation \$24.00 Projected VC change \$(1.00) Output area: a. Depreciation per year \$112,000 Accounting breakeven 77,846 b. Base OCF \$299,200 Base NPV \$446,606.60 New quantity 105,000 OCF \$341,450 NPV \$636,195.93 \$37.918 For a sales change of (500) the NPV would change \$(18,958.93) c. New variable cost \$24.00 OCF \$364,200 \$(65,000.00) If variable costs change by \$(1.00) then OCF would change by \$65,000.00 NPV/ Q OCF/ VC

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Chapter 8 Question 2 Input area: Initial cost \$896,000 Project life 8 Units sales 100,000 Price/unit \$38.00 Variable cost/unit \$25.00 Fixed costs \$900,000 Tax rate 35% Required return 15% Price uncertainty 10% Quantity uncertainty 10% Variable cost uncertainty 10% Fixed cost uncertainty 10% Output area: Annual depreciation \$112,000 Scenario Unit sales Unit price Unit variable cost Fixed costs Base case 100,000 \$38.00 \$25.00 \$900,000 Best case 110,000 \$41.80 \$22.50 \$810,000 Worst case 90,000 \$34.20 \$27.50 \$990,000 Best-case OCF \$892,650.00 Best-case NPV \$3,109,607.54 Worst-case OCF \$(212,350.00) Worst-case NPV \$(1,848,882.72)
Chapter 8 Question 3 Input area: Accounting breakeven Unit price Unit variable cost Fixed costs Depreciation a. 130,200 \$41 \$30 \$820,000 ? b. 135,000 ? 56 3,200,000 \$1,150,000 c. 5,478 105 ? 160,000 105,000 Output area: a. Depreciation \$612,200 b. Unit price \$88.22 c. Unit variable cost \$56.62

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Chapter 8 Question 4 Input area: Machine cost \$200,000 Life of machine 5 Price per unit \$25 Variable cost per unit \$5 Fixed costs \$350,000 Tax rate 25% Discount rate 12% Output area: EAC \$55,481.95 Financial breakeven 20,532.13
Chapter 8 Question 5 Input Area: New machine cash flow \$280,000 Price \$1,500,000 Pirce decline/year \$125,000 Lowest price \$1,000,000 Technology life 10 Required return 12% Output Area: Purchase in year: NPV 0 \$82,062.45 1 \$104,383.88 2 \$112,355.82 3 \$108,796.91 4 \$96,086.55 5 \$5,298.26 6 \$(75,762.72) You should purchase when the NPV is the highest, which is \$112,355.82 when purchased in Year 2

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Chapter 8 Question 6 Input area: Go to market now: Payoff if successful \$20,000,000 Payoff if not successful \$5,000,000 Probability of success 50% Probability of failure 50% Test market first: Cost of test marketing \$2,000,000 Probability of success 75% Probability of failure 25% Discount rate 15% Output area: NPV of going to market now \$12,500,000.00 NPV of test marketing \$12,130,434.78 The company should go to market now since this option has the highest NPV.
Chapter 8 Question 7 Input area: Go to market now: Probability of success 50% Focus group: Cost \$120,000 Probability of success 70% Consulting firm: Cost \$400,000 Probability of success 90% NPV if successful \$1,200,000 NVP if unsuccessful \$- Output area: NPV of going to market now \$600,000.00 NPV of focus group \$720,000.00 NPV of consulting firm \$680,000.00 : The company should use the focus group since this option has the highest NPV.

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Chapter 8 Question 8 Input area: Go to market now: Probability of success 55% Market research: Cost \$1,000,000 Probability of success 70% NPV if successful \$30,000,000 NVP if unsuccessful \$3,000,000 Disocount rate 15% Output area: NPV of going to market now \$17,850,000.00
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