Finefodder\'s analysts have come up with the following revised estimates for the
ID: 2744586 • Letter: F
Question
Finefodder's analysts have come up with the following revised estimates for the Gravenstein store:
Range
pessimistic expected optimistic
investment $3,840,000 $3,780,000 $3,720,000
sales 13,000,000 15,000,000 23,000,000
variable costs as % of sales 74 73 72
fixed cost $2,000,000 $1,800,000 $1,500,000
Assume the project life is 12 years, the tax rate is 40%, the discount rate is 8%, and the depreciation method is straight-line over the project's life. conduct a sensitivity analysis for each variable and range and compute the NPV for each. (Do not roound intermediate calculations. Round your answers to the nearset whole dollar amount. Negative amounts should be indicated by a minus sign. Enter your answers in dolllars, not in millions)
NPV of Gravenstein Store
pessimistic expected optimistic
investment __________ __________ _____________
sales ___________ ___________ _____________
variable costs as % of sales ___________ ___________ _____________
fixed cost ___________ ___________ _____________
Explanation / Answer
NPV of Gravenstein Store RANGE Pessimistic Expected Optimistic Investment a 3840000 3,780,000 3720000 Sales b 13000000 15000000 23000000 Variable Cost (%) c 74% 73% 72% Variable Cost as % of Sales d = b*c 9620000 10950000 16560000 Fixed Cost e 2000000 1800000 1500000 Depreciation f= a/12 320000 315000 310000 Income before Tax g = b-d-e-f 1060000 1935000 4630000 Income tax @ 40% h = g*40% 424000 774000 1852000 Net Income i= g-h 636000 1161000 2778000 Annual Cash Inflow j= i+f 956000 1476000 3088000 PVIFA 8%, 12 years k 7.536 7.536 7.536 PV of Cash Inflow in 12 years l = j*k 7204416 11123136 23271168 NPV m= l-a 3364416 7343136 19551168
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