Finefodder’s analysts have come up with the following revised estimates for the
ID: 2762978 • Letter: F
Question
Finefodder’s analysts have come up with the following revised estimates for the Gravenstein store:
Range
Pessimistic Expected Optimistic
Investment $4,320,000 $4,200,000 $4,080,000 Sales 15,000,000 17,000,000 19,000,000
Variable costs
% of sales 71 69 67
Fixed cost $3,300,000 $3,000,000 $2,700,000
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 round intermediate calculations. Round your answers to the nearest whole dollar amount. Negative amounts should be indicated by a minus sign. Enter your answers in dollars, not in millions.)
NPV of Gravenstein Store
Pessimistic Expected Optimistic
Investment
Sales
Variable costs as % of sales
Fixed cost
Explanation / Answer
Pessimistic Expected Optimistic Sales 15000000 17000000 19000000 Variable cost% 71 69 67 Variable cost 10650000 11730000 12730000 Contribution 4350000 5270000 6270000 Fixed cost 3300000 3000000 2700000 EBDIT 1050000 2270000 3570000 Depreciation 360000 350000 340000 EBIT 690000 1920000 3230000 Tax -40% 276000 768000 1292000 EBDIT 1050000 2270000 3570000 Tax -40% 420000 908000 1428000 capex(Dep) 360000 350000 340000 Free cashflows 270000 1012000 1802000 8% discount rate for 12 years 7.536 7.536 7.536 PV of inflows 2034720 7626432 13579872 Investment 4320000 4200000 4080000 NPV -2285280 3426432 9499872 Note : Depreciation calculation Investment 4320000 4200000 4080000 life of project 12 12 12 Depreciation 360000 350000 340000
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