Question 1 The expected annual free cash flow for the GPS tracker investment from problem 3-1 is com

Question 1
The expected annual free
cash flow for the GPS tracker investment from problem 3-1 is computed as
follows
Revenue 1,250,000
Variable cost 750,000
Fixed expenses 250,000
Gross profit 250,000
Depreciation 100,000
Net operating income
150,000
Income tax expenses 51,000
NOPAT 99,000
Plus depreciation 100,000
Less CAPEX –

Less working capital investments –
Free cash flow 199,000

Required
a. Construct
a spreadsheet model to compute free cash flow that relies on the following
assumptions or estimate.
Base
Case estimate values
Initial
cost of equipment 1000,000.00
Project
and equipment life 10years
Salvage
value of equipment $0
Working
capital requirement $0
Depreciation
method straight-line
Depreciation
expenses 1000,000.00
Discount
Rate 10.00%
Tax
rate 34.00%
Unit
sales 10,000
Price
per unit 125.00
Variable
cost per unit $75.00
Fixed
costs $250,000.00

b. What
level of annual unit sales does it take for the investment to achieve a zero
NPV? Use your spreadsheet model to answer this question.(Hint use the Goal seek
function in excel)
c. If
unit sales were 15% higher than the base case, what unit price would it take
for the investment to achieve a zero NPV?

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