Conch Republic can manufacture the new smart phones for $300 each in variable co

Question

Conch Republic can manufacture the new smart phones for $300 each in variable costs. Fixed costs for the operation are estimated to run $4.3 million per year. The estimated sales volume is 75,000, 95,000, 125,000, 130,000, and 140,000 per year for the next five years, respectively. The unit price of the new smart phone will be $650. The necessary equipment can be purchased for $61 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $3.4 million.Shelley believes that the unit sales, variable costs and equipment cost projections are accurate to ±20%.
Questions:
6. What is the best case NPV, IRR and PBP of the project?
7. What is the worst case NPV, IRR and PBP of the project? What would be your decision under the worst case scenario?

Please show working using excel:

Base Case Best Case Worst Case 0% 20% -20% Change in Unit Sales (%) Equipment Cost ($) Variable cost (per unit) Best Case Scenario Pro Forma Income Statements Year Year 1 Year 2 Year 3 Year 4 Year 5 Revenues Variable costs Fixed costs Depreciation EBIT Taxes (0%) Net income OCF Net Working Capital Year Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Initial NWC Ending NWC NWC cash flow Salvage Value Market value of salvage Book value of salvage Taxes on sale: Aftertax salvage value: Project Cash Flows Year Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 OCF Change in NWC Capital spending Total cash flow Cumulative cash flow Payback Period NPV IRR Worst Case Scenario Pro Forma Income Statements Year Year 1 Year 2 Year 3 Year 4 Year 5 Revenues Variable costs Fixed costs Depreciation EBIT Taxes (0%) Net income OCF Net Working Capital Year Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Initial NWC Ending NWC NWC cash flow Salvage Value Market value of salvage Book value of salvage Taxes on sale: Aftertax salvage value: Project Cash Flows Year Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 OCF Change in NWC Capital spending Total cash flow Cumulative cash flow Payback Period NPV IRR Question 6 Uncertainty NPV IRR PBP Best Case 20% Question 7 Uncertainty NPV IRR PBP Worst Case -20% Decision

Explanation / Answer

As rate of discounting not given , I assumed it 20%

In both senerio , the company have positive NPV so, the project is doable in all condition

Macr 7 year Depreciation rate 14.29 24.49 17.49 12.49 8.93 8.92 8.93 4.46

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