We assume that the company that you selected is considering

5. Cash Flow Estimation (40 points)- We assume that the company that you selected is considering a new project. We assume that thecompany you selected is considering a new project. The project has 8 years’ life. This project requiresinitial investment of $300 million to construct building and purchase equipment, and $20 million forshipping &amp, installation fee. The fixed assets fall in the 7-year MACRS class. The salvage value of the fixedassets is $15 million. The number of units of the new product expected to be sold in the first year is2,000,000 and the expected annual growth rate is 10%. The sales price is $300 per unit and the variablecost is $220 per unit in the first year, but they should be adjusted accordingly based on the estimatedannualized inflation rate of 2. 8%. The required net operating working capital (NOWC) is 12% of sales. Usethe corporate tax rate (TAX RATE IS 43%) obtained in Step (4) for this project. The project is assumed tohave the same risk as the corporation, so you should use the WACC you obtained from prior steps as thediscount rate. Note: you may revise the partial model in the file Ch11 P18 Build a Model. xls provided bythe textbook (Posted in this final project learning module in Blackboard) for capital budgeting analysis,but you are NOT required to strictly follow this partial model. Actually, you are encouraged to build amodel by yourself. – Compute the depreciation basis and annual depreciation of the new project. (Please refer to Table 11A2 MACRS allowances in the textbook)- Estimate annual cash flows for the 8 years. – Draw a time line of the cash flows. (6) Capital Budgeting Analysis (40 points)- Using the WACC obtained from in Step (4) – (WACC IS 8. 53%) as the discount rate for this project,apply capital budgeting analysis techniques (NPV, IRR, MIRR, PI, Payback, Discounted Payback) to analyzethe new project. – Perform a sensitivity analysis for the effects of key variables (e. g. , sales growth rate, cost of capital, unitcosts, sales price) on the estimated NPV or IRR in order to demonstrate the sensitivity of the model. TheScenario analysis of several variables simultaneously is encouraged (but not required). A PDF documentnamed Sensitivity Analysis in Excel is provided in this learning module. The article introduces the DataTable method that you can use for performing sensitivity analysis in Excel. – Discuss whether the project should be taken and summarize your report

Originally posted 2018-07-05 16:53:17. Republished by Blog Post Promoter

We assume that the company that you selected is considering

Question
5. Cash Flow Estimation (40 points)
– We assume that the company that you selected is considering a new project. We assume that the
company you selected is considering a new project. The project has 8 years’ life. This project requires
initial investment of $300 million to construct building and purchase equipment, and $20 million for
shipping & installation fee. The fixed assets fall in the 7-year MACRS class. The salvage value of the fixed
assets is $15 million. The number of units of the new product expected to be sold in the first year is
2,000,000 and the expected annual growth rate is 10%. The sales price is $300 per unit and the variable
cost is $220 per unit in the first year, but they should be adjusted accordingly based on the estimated
annualized inflation rate of 2.8%. The required net operating working capital (NOWC) is 12% of sales. Use
the corporate tax rate (TAX RATE IS 43%) obtained in Step (4) for this project. The project is assumed to
have the same risk as the corporation, so you should use the WACC you obtained from prior steps as the
discount rate. Note: you may revise the partial model in the file Ch11 P18 Build a Model.xls provided by
the textbook (Posted in this final project learning module in Blackboard) for capital budgeting analysis,
but you are NOT required to strictly follow this partial model. Actually, you are encouraged to build a
model by yourself.
– Compute the depreciation basis and annual depreciation of the new project. (Please refer to Table 11A2 MACRS allowances in the textbook)
– Estimate annual cash flows for the 8 years.
– Draw a time line of the cash flows.

(6) Capital Budgeting Analysis (40 points)
– Using the WACC obtained from in Step (4) – (WACC IS 8.53%) as the discount rate for this project,
apply capital budgeting analysis techniques (NPV, IRR, MIRR, PI, Payback, Discounted Payback) to analyze
the new project.
– Perform a sensitivity analysis for the effects of key variables (e.g., sales growth rate, cost of capital, unit
costs, sales price) on the estimated NPV or IRR in order to demonstrate the sensitivity of the model. The
Scenario analysis of several variables simultaneously is encouraged (but not required). A PDF document
named Sensitivity Analysis in Excel is provided in this learning module. The article introduces the Data
Table method that you can use for performing sensitivity analysis in Excel.
– Discuss whether the project should be taken and summarize your report