Putting it all together. I will now ask a few questions in "bullet" format to keep you focused on the givens, and will a

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Putting It All Together I Will Now Ask A Few Questions In Bullet Format To Keep You Focused On The Givens And Will A 1 (76.39 KiB) Viewed 11 times

Putting it all together. I will now ask a few questions in "bullet" format to keep you focused on the givens, and will add more givens as the problems progress. NPV = PV (OCF8) + PV (after tax salvage) + PV (NWC)-PV (Investment) A $4 million investment today, in a project to last 10 years, is believed to result in the following incremental cash flows: . annual increase in sales of $2,100,000 • operating expenses will be 50% of sales . there is no NWC investment associated with this project. • assets purchased for this project are depreciated to zero value using straight-line over the project's complete life • market value of assets at end of life are expected to be $0 firm's marginal tax rate is 32% • required return on the project is 14% compounded annually What is the NPV of this project? Enter answer in dollars, rounded to the nearest dollar. Question 23 What is the IRR of the above project? Note that it has conventional cash flows and positive NPV, therefore IRR must be greater than 0.16. Enter rate in decimal form, rounded to the 4th digit, as in "0.1234" Question 24 What level of incremental sales would cause the above project to break-even (have NPV=$0)? Hint: in this problem as incremental sales change, so do expenses, therefore, if solving by hand we can rewrite the OCF in this case as OCF(sales-0.5 (sales)) (1-tarrate) + dep tarrate or as: OCF=0.5 (sales) (1-tarrate) + dep tarrate Step (1) find b/e OCF, and then (2) find sales that yields the b/e OCF. If solving by excel, we can use goal seek, but just be sure OCF and NPV change as you change the sales cell.