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Calculate the NPV of a 5-year project that has initial sales of $100 million that...

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Accounting

Calculate the NPV of a 5-year project that has initial sales of $100 million that increase 15% for years 2 and 3 and decline 20% in years 4 and 5. Assume EBIT margins of 25% that increase 1% in absolute amounts in years 2 and 3 and decline by 3% in years 4 and 5. The initial investment of the project is $100 million and the cost can be depreciated by straight line over the life of the project. Assume a tax rate of 30% and a WACC of 10%. Note the NPV = PV of free cash flow initial investment. Ignore working capital. Construct an NPV profile for the project. Construct a two-way data table that varies the decline in sales in years 4 and 5 from 20-40% in increments of 2% and the decline in EBIT margins in years 4 and 5 from 3-10% in increments of 1%. Comment on your findings.

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