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# Sol 2 - The pro forma income statement will be Sales...

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The pro forma income statement will be: Sales \$19,055,000 Variable costs 10,464,000 Costs 8,250,000 Depreciation 2,600,000 EBT 2,259,000 Taxes 903,600 *assumes a tax credit Net income \$1,355,400 Using the bottom up OCF calculation, we get: OCF = NI + Depreciation = \$1,355,400 + 2,600,000 OCF = \$1,244,600 And the worst-case NPV is: NPV = \$18.2M .95M + \$1,244,600(PVIFA14%,7) + .95M/1.147 NPV = \$13,433,120.34 16. To calculate the sensitivity of the NPV to changes in the price of the new club, we simply need to change the price of the new club. We will choose \$750, but the choice is irrelevant as the sensitivity will be the same no matter what price we choose. We will calculate the sales and variable costs first. Since we will lose sales of the expensive clubs and gain sales of the cheap clubs, these must be accounted for as erosion. The total sales for the new project will be: Sales New clubs \$750 55,000 = \$41,250,000 Exp. clubs \$1,100 ( 13,000) = 14,300,000 � � Cheap clubs \$400 10,000 = 4,000,000 \$30,950,000 For the variable costs, we must include the units gained or lost from the existing clubs. Note that the variable costs of the expensive clubs are an inflow. If we are not producing the sets any more, we will save these variable costs, which is an inflow. So: Var. costs New clubs \$320 55,000 = \$17,600,000

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Sol 2 - The pro forma income statement will be Sales...

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