Use the following information to answer the next 3 questions. Pappy’s Potato has come up with a...

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Finance

Use the following information to answer the next 3questions.
Pappy’s Potato has come up with a new product, the Potato Pet(they are freeze-dried to last longer). It is expected that PotatoPet will generate sales of $575,000 per year. The fixed costsassociated with this will be $179,000 per year, and variable costswill amount to 20 percent of sales. The equipment necessary forproduction of the Potato Pet will cost $920,000 and will bedepreciated to zero in a straight-line manner for the four years ofthe product life (as with all fads, it is felt the sales will endquickly). The equipment will require an increase in working capital(spare parts inventory) of $7,500 at the beginning. Pappy’s is in a35 percent tax bracket and has a required return of 14 percent.
[Use Excel to answer the questions. Without Excel worksheet, nocredit will be earned.]
1. What is the NPV and IRR of the project? Is the projectacceptable?
2. Do the following scenario analyses:
What if the sales level is 50% higher than the current estimate?Compute the NPV and IRR of the project.
What if the sales level is 75% higher than the current estimate?Compute the NPV and IRR of the project.
What if the sales level is 50% lower than the current estimate?Compute the NPV and IRR of the project.
What if the sales level is 75% lower than the current estimate?Compute the NPV and IRR of the project.
3. What is the breakeven price of the equipment? (What price ofthe equipment will make the NPV equal zero?)

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Use the following information to answer the next 3questions.Pappy’s Potato has come up with a new product, the Potato Pet(they are freeze-dried to last longer). It is expected that PotatoPet will generate sales of $575,000 per year. The fixed costsassociated with this will be $179,000 per year, and variable costswill amount to 20 percent of sales. The equipment necessary forproduction of the Potato Pet will cost $920,000 and will bedepreciated to zero in a straight-line manner for the four years ofthe product life (as with all fads, it is felt the sales will endquickly). The equipment will require an increase in working capital(spare parts inventory) of $7,500 at the beginning. Pappy’s is in a35 percent tax bracket and has a required return of 14 percent.[Use Excel to answer the questions. Without Excel worksheet, nocredit will be earned.]1. What is the NPV and IRR of the project? Is the projectacceptable?2. Do the following scenario analyses:What if the sales level is 50% higher than the current estimate?Compute the NPV and IRR of the project.What if the sales level is 75% higher than the current estimate?Compute the NPV and IRR of the project.What if the sales level is 50% lower than the current estimate?Compute the NPV and IRR of the project.What if the sales level is 75% lower than the current estimate?Compute the NPV and IRR of the project.3. What is the breakeven price of the equipment? (What price ofthe equipment will make the NPV equal zero?)