Fineholder\'s analysis have come up with the following revised ostimates for the

Question

Fineholder's analysis have come up with the following revised ostimates for the Gravenstain store. Assume the project life is 12 years, the tax rate is 40%, the discount rate is 6%, and depreciation method is straight-line over the projects life. Conduct a 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 answer m in dollars, not in millions.)

Explanation / Answer

Solution:

Pessimistic Expected Optimistic Investment 42,00,000 40,80,000 40,20,000 Sales 1,40,00,000 1,80,00,000 2,60,00,000 Variable Cost as a % of sales 70%=98,00,000 69%=1,24,20,000 68%=1,76,80,000 Fixed Cost 26,00,000 23,00,000 21,00,000 Depreciation Investment/12 3,50,000 3,40,000 3,35,000 Annual Operating Cost =Fixed cost+variable cost 12400000 14720000 19780000 Expected Annual Net cash Flow =(1-tax rate)(sales-operating cost)+depr. 1310000 2308000 4067000 Discount Factor 8% NPV 5672262.20 13313268.06 26629229.29

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