BMT has developed a new product. It can go into production for an initial investment of $2,000,000. The equipment will be depreciated using straight-line depreciation over 4 years to a value of zero. The firm believes that net working capital at each date will equal 30 percent of next yearâs forecast sales. The firm estimates that variable costs are equal to 40% of sales and fixed costs are $400,000 per year. Sales forecasts in dollars are below. The project will come to an end after 4 years, when the product becomes obsolete. The firmâs tax rate is 35 percent, and the discount rate is 9 percent.
Year 0 1 2 3 4
Sales forecast (in $): 0 800,000 2,400,000 2,700,000 3,200,000
perform sensitivity analysis on the following assumptions and find the revised NPV
(a) sales are 10% lower each year than predicted above
(b) the discount rate is 12 percent
Note: The original question asked to find NPV(which I already did). This question asks for revised NPV and two new conditions. Plz help.
BMT has developed a new product. It can go into production for an initial investment of $2,000,000. The equipment will be depreciated using straight-line depreciation over 4 years to a value of zero. The firm believes that net working capital at each date will equal 30 percent of next yearâs forecast sales. The firm estimates that variable costs are equal to 40% of sales and fixed costs are $400,000 per year. Sales forecasts in dollars are below. The project will come to an end after 4 years, when the product becomes obsolete. The firmâs tax rate is 35 percent, and the discount rate is 9 percent.
Year 0 1 2 3 4
Sales forecast (in $): 0 800,000 2,400,000 2,700,000 3,200,000
perform sensitivity analysis on the following assumptions and find the revised NPV
(a) sales are 10% lower each year than predicted above
(b) the discount rate is 12 percent
Note: The original question asked to find NPV(which I already did). This question asks for revised NPV and two new conditions. Plz help.
Related questions
| Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6.6 million. The equipment will be depreciated straight line over 6 years to a value of zero, but in fact it can be sold after 6 years for $643,000. The firm believes that working capital at each date must be maintained at a level of 15% of next yearâs forecast sales. The firm estimates production costs equal to $1.90 per trap and believes that the traps can be sold for $6 each. Sales forecasts are given in the following table. The project will come to an end in 6 years., when the trap becomes technologically obsolete. The firmâs tax bracket is 35%, and the required rate of return on the project is 12%. Use the MACRS depreciation schedule. |
| Year: | 0 | 1 | 2 | 3 | 4 | 5 | 6 | Thereafter |
| Sales (millions of traps) | 0 | .4 | .5 | .7 | .7 | .5 | .3 | 0 |
| Suppose the firm can cut its requirements for working capital in half by using better inventory control systems. By how much will this increase project NPV? (Enter your answer in millions rounded to 4 decimal places.) |
| NPV | $ million |
