Perform a scenario analysis using ten percent

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Spider Lamp is considering the manufacture of a new lamp. Equipment necessary for production will cost $9 million and be depreciated on a straight-line basis over the eight-year life of the product to $1 million salvage value. The lamp will retail for $110. The company expects to sell 100,000 lamps per year. Fixed costs will be $2,000,000 per year and variable costs are $45 per lamp. Production will require an investment in net working capital of $500,000. The tax rate is 40 percent.

Problem a) Perform a scenario analysis using 10 percent, 20 percent, and 30 percent cost of capital. Calculate IRR and NPV for each case.

Problem b) Conduct sensitivity analysis. (for example, you can choose NPV using a couple of variables with a 20 percent deviation from the base)

Reference no: EM132962618

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