L7 Assignment
PROF SocratesSCENARIO ANALYSIS: We are evaluating a project that costs $688000, has a five-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 45000 units per year. Price per unit is $53, variable cost per unit is $25, and fixed costs are $520000 per year. The tax rate is 30%, and we require a return of 15% on this project. Suppose the projections given for price, quantity sold, variable costs, and fixed costs are all accurate to within ±10 percent. What is the Best Case NPV? (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places) What is the Worst Case NPV? (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places)
REAL OPTION ANALYSIS: Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $330000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,760,000. The cost of the machine will decline by $110,000 per year until it reaches $1,320,000, where it will remain. The required return is 13 %. What is the NPV if the company purchases the machine today? (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places) What is the NPV if the company decides to wait 1 year to purchases the machine? (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places) What is the NPV if the company decides to wait 2 years to purchases the machine? (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places) What is the NPV if the company decides to wait 3 years to purchases the machine? (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places) What is the NPV if the company decides to wait 4 years to purchases the machine? (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places) What is the NPV if the company decides to wait 5 years to purchases the machine? (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places)
REAL OPTION ANALYSIS: Osceola Electronics, Inc., has developed a new HD DVD. If the HD DVD is successful, the present value of the payoff (at the time the product is brought to market) is $30.6 million. If the HD DVD fails, the present value of the payoff is $8.6 million. If the product goes directly to market, there is a 60 percent chance of success. Alternatively, Osceola can delay the launch by one year and spend $1.32 million to test-market the HD DVD. Test-marketing would allow the firm to improve the product and increase the probability of success to 80%. The appropriate discount rate is 10%. What is the NPV of going directly to market? (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places) What is the NPV of test-marketing before going to market? (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places)
BREAK-EVEN & SENSITIVITY ANALYSIS: We are evaluating a project that costs $844000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 68000 units per year. Price per unit is $37, variable cost per unit is $17, and fixed costs are $422000 per year. The tax rate is 35%, and we require a return of 20% on this project. What is the NPV of this base-case? (Round answers to 2 decimal places, round intermediate calculations to 5 decimal places) Calculate the Accounting Break-Even Point. (Round answers to 0 decimal places, round intermediate calculations to 5 decimal places) Calculate the Financial Break-Even Point. (Round answers to 0 decimal places, round intermediate calculations to 5 decimal places) In dollar terms, what is the sensitivity of NPV to changes in the units sold projection? (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places) In percentage terms, what is the sensitivity of NPV to changes in the units sold projection? (Round answer to 4 decimal places, round intermediate calculations to 5 decimal places) In dollar terms, what is the sensitivity of OCF to changes in the variable cost per unit projection? (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places) In percentage terms, what is the sensitivity of OCF to changes in the variable cost per unit projection? (Round answer to 4 decimal places, round intermediate calculations to 5 decimal places)
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