70.2K

Verified Solution

Link Copied!

analysts performing the analysis expect that the firm can sell 108,000 units per year at this price for a period of five years, after which time they expect demand for the product to end as a result of new technology In addition, valable costs are expected to be 522 per unit and fixed costs, not including depreciation are forecast to be 51 100.000 per year to manufacture this product Blinkeria will need to buy a computerized production machine for $10 8 million that has no residual or Salvage value, and will have an expected life of five years. In addition, the firm expects it will have to invest an additional $306.000 in working capital to support the new business Other pertinent Information concerning the business venture is provided here a. Calculate the project's NPV b. Determine the sitivity of the project's NPV to an) 11 percent decrease in the number of units sold c. Determine the sensitivity of the projects NPV to an) 11 percent decrease in the price per unit d. Determine the selvity of the projects NPV to (n) 11 percent increase in the variable cost per unit u. Determine the sensitivity of the project's NPV to an 11 percent increase in the annual foed operating costs 1. Use scenario analysis to evaluate the project's NPV under worstand best-case scenarios for the project's value drivers. The values for the expected or bune case along with the worstand best case scenarios arested here m The NPV for the banecase will be $ (Round to the nearest dollar) be Initial cost of the machine $10.800.000 Expected life 5 years Salvage value of the machine $0 Working capital requirement $306 000 Depreciation method straight line Depreciation expense $2,160,000 per year Cash fixed costs-excluding depreciation $1,100,000 per year Variable costs per unit $22. Required rate of return or cost of capital 9.8% Tax rate 34% (Click on the icon in order to copy its contents into a spreadsheet) Print Done nsiti lysis h the base Expected or Base Case Worst Case Unit sales 108,000 77,760 Price per unit $99 $87.12 Variable cost per unit $(22) $(24.20) Cash fixed costs per year $(1,100,000) $(1,320,000) Depreciation expense $(2,160,000) S(2,160,000) (Click on the icone in order to copy its contents into a spreadsheet.) Best Case 138,240 $119.79 $(20.24) S(979,000 $(2.160,000 Print Done

Answer & Explanation Solved by verified expert

See Answer