Calculate the project npv-irr-discounted payback period

Assignment Help Financial Management

Reference no: EM132053096

RSM Co is considering a project which will require the purchase of $2.7 million in new equipment. The equipment will be depreciated straight-line to a book value of $1 million over the 5-year life of the project. Annual sales from this project are estimated at $2,950,000. The variable cost is 40% of the annual sales and there is an annual fixed cost of $200,000. Sway's Back Store will sell the equipment at the end of the project for 30% of its original cost. New net working capital equal to 15% of sales will be required to support the project. All of the new net working capital will be recouped at the end of the project. The firm’s WACC is 12% per year. The tax rate is 40%.

Please expain how to solve on excel

1. Please calculate the project NPV, IRR, Discounted Payback Period and Modified IRR (reinvestment return is 10%).

2. If annual sales is changed to $1,800,000, what is the project’s NPV. assuming every else the same? What is the sensitivity of NPV to annual sales?

3. In the worst case, annual sales decreases to $1.2 million, and WACC increases to 15%. What is the project’s NPV under the worst case?

4. In the best case, annual sales increases to $ 2 million, and WACC decrease to 10%. What is the project’s NPV under the best case?

5. What is the expected NPV and standard deviation of NPV, based on the three scenarios? (assume equal chance of occurrence for each scenario)

6. The company launches the project based on a marketing campaign one year before the project starts. The campaign costed $200,000. If the company launch the project without the campaign, there is only 50% chance that the project turns out to be expected. There is also 50% chance that the project would fail the market and leads to a NPV of - $2,450,000. How much value does the marketing campaign add to project?

Reference no: EM132053096

Questions Cloud

Standard deviation of expected return of a portfolio : Calculate the standard deviation of expected return of a portfolio that has half of its money invested in A and half in B.

What risk do you face-how could you eliminate risk : You are saving for your child’s college in 8 years and have a fixed income portfolio with a duration of 12. What risk do you face? How could you eliminate risk.

Considering two independent projects with the cash flows : You are considering two independent projects with the following cash flows. The required return for both projects is 10%.

What is the real rate of return for the stock : During the same period, a stock increases in price for $100 to $125.0. What is the real rate of return for the stock for the 3 month period?

Calculate the project npv-irr-discounted payback period : Calculate the project NPV, IRR, Discounted Payback Period and Modified IRR (reinvestment return is 10%).

Calculate hemingway market value based capital structure : Calculate Hemingway's market value based capital structure.

What is the value of philadelphia share : What is the value of a Philadelphia share if the investors’ expected return is 20 percent?

Only rules of thumb in making RE investment decisions : What are the shortcomings of using only rules of thumb in making RE investment decisions?

What was charge for depreciation and amortization : Patterson Brothers recently reported an EBITDA of $12.5 million and net income of $3.5 million. What was its charge for depreciation and amortization?

User Account

All Pages