An investor is considering a new manufacturing project. The product is the flat screen monitor. A detailed market research has been conducted. The study projects the unit market price for the product is $300 next year, declining 10% per year in succeeding years. The project would require $4,600,000 for the main processing equipment which would be depreciated using modified ACRS 7 year life depreciation, starting with the half-year convention in year 2 when assets are placed into service. Write off the remaining undepreciated book value at year 6 which is the end of the project life. An additional development cost of $500,000 and working capital cost of $20,000 are required at year 1. Working capital is expected to return at the end of the project. The production is projected to be 8,000 units starting from year 2 and increase 15% per year. Operating expenses are estimated to be $800,000 in year 2, escalating 8% in succeeding years. Annual operating costs, including employee salary, rentals, office expenses, are projected to be $2,000,000. The effective income tax rate is 38% and minimum DCFROR is 13%. It is assumed that this project does not have other income against which to use the year 1 negative taxable income, so it must carried forward to be used against projected positive taxable income in the succeeding years. Calculate DCFROR, NPV, PWC, PWR, Benefit-Cost ratio and Payback. Can the project survive if the unit market price drops by 20% of the predicted prices?
Use Precision's worksheet template and fill in the available data. Use depreciation
calculator to calculate the depreciation costs and use the Copy Transpose to
paste the data to the depreciation line items. Copy the net cash flow line item
data from the worksheet and Paste Transpose to Precision's cash flow table.
Highlight the cash flow range to get the analytical results.
For sensitivity analysis, copy the data and formulas from Sheet1 to other sheets. Change the data and get cash flow for multiple cases. Use importing worksheets functionality from the Worksheets Import tab to analyze scenarios into the Summary table and do a cross-case analysis on their NPV, IRR, Payback, etc.
Enter data to the worksheet template and add or modify the cell formulas
Copy cell formulas to other sheets and create multiple scenarios
Note the sheet tab names are the case names. Change data to get another scenario.
Go To Multiple Worksheets Cash Flows Import
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