+1-415-315-9853

info@mywordsolution.com

## Finance

 Basic Finance Corporate Finance Financial Management Financial Econometrics Portfolio Management Risk Management Public Finance Business Law & Ethics

Assignment - Capital Budgeting, Breakeven Analysis and Sensitivity Analysis

The Proposal:

The Research and Development Division of your company has just developed a new gaming system termed as the Zed Box. The R&D Division spent \$800,000 developing this product and the Marketing Division has spent the other \$210,000 to assess the market demand. They believe that the Zed Box system has superior graphics and speed, and will have great market appeal at a competitive price of \$225. The Marketing Division estimates the given demand for the Zed Box:

After that time they believe there would be no more sales of the product as newer products become available. The Zed Box is expected to cost \$132 each to manufacture (variable cost).  In addition, fixed production costs are estimated at \$1 million per year. The manufacturing equipment essential to generate the games costs \$2,800,000 million to buy and would be depreciated at a 30 percent CCA rate. The manufacturing equipment is expected to have salvage value equivalent to 15% of the initial cost. We would require investing \$350,000 in net working capital up front (primarily for inventory) and NWC will rise to 18% of sales. The NWC will be recovered at the end of the project. The required return is 10%, and the tax rate is expected to be 42 %.

Requirements:

• Find out the NPV and the IRR of the Zed Box project by using the pro forma financial statement method to find out cash flows.
• Enter the input variables in cells of their own at the top of the spreadsheet (so it is simpler to do sensitivity computations).
• Set up the essential equations by referencing to the input variable cells. The spreadsheet should be formula driven; don’t put any numbers in equations, only cell references.
• Use Excel’s built-in functions wherever possible (ex: PV and IRR functions).

2) Breakeven analysis (cash B/E point only)
Set up a formula in Excel (this formula is not built-in) to compute the cash breakeven point for the base case.

3) Sensitivity analysis:

a) Recognize all the variables used in the proposal that are estimates or are subject to change during the life of the project. In brief describe why such variables might change.

b) Select two variables which you identified above on which to do sensitivity analysis:

• Change such two variables (one at a time) in small increments via a fairly broad range of values by using your Excel spreadsheet, and show how sensitive the project is to changes in these two variables. Keep in mind, the better your sensitivity analysis, the more information it will give you to interpret and develop your recommendation.

• Present your sensitivity analysis in two Excel tables which summarize the results of your sensitivity analysis (that is, the NPV, IRR and Breakeven Analysis results at the different values for the input variables). You will require Copy/Paste Special/Value to paste the changed values into your tables. Or else the values in your tables will keep modifying when you change the input variables.

Financial Management, Finance

• Category:- Financial Management
• Reference No.:- M94241

Have any Question?

## Related Questions in Financial Management

### Turn a cheekjune 1996 the new york times columnist bob

TURN A CHEEK June 1996, The New York Times columnist Bob Herbert wrote a pair of opinion editorials accusing Nike Corp. of cruelly exploiting cheap Asian labor. Nike CEO Philip Knight replied in a letter to the editor, w ...

### Tire king is a us based mnc with annual sales of over 26

Tire King is a U.S. based MNC with annual sales of over \$26 billion. This firm has subsidiaries across the globe therefore it earns cash flows in different currencies. Tire King took loan in the U.S, but it is earning mo ...

### Net present value calculation dowling sportswear is

(Net present value calculation) Dowling Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of \$4,000,000 and would generate annual net ca ...

### An investment offers a total return of 12 percent over the

An investment offers a total return of 12 percent over the coming year. Bill Bernanke thinks the total real return on this investment will be only 8.8 percent. Required: What does Bill believe the inflation rate will be ...

### Assume that you recently graduated and you just landed a

Assume that you recently graduated and you just landed a job as a financial planner with the Cleveland Clinic. Your first assignment is to invest \$100,000. Because the funds are to be invested at the end of one year, you ...

### Calculate the portfolio weights implied by the dollar

Calculate the portfolio weights implied by the dollar investments in each of the asset classes below. Asset \$ Invested Stocks \$ 10,000 Bonds \$ 10,000 T-bills \$ 5,000

### The manchester corporation has warrants presently

The Manchester Corporation has warrants presently outstanding, and each warrant entitles the holder to purchase one share of the company's common stock at an exercise price of \$20 a share. If the market price of the warr ...

### Jenny clayton is looking to invest in some 5-year bonds

Jenny Clayton is looking to invest in some 5-year bonds that pay annual coupons of 6.25 percent on a face value of \$1,000 and are currently selling for \$588.79. What is the yield to maturity on these bonds?

### The final project including the introduction which will be

The final project, including the Introduction, which will be a concise, professional introduction explaining the purpose of your analysis to your executive, and the Conclusion, which will be a concise, professional concl ...

### A fast-growing firm recently paid a dividend of 060 per

A fast-growing firm recently paid a dividend of \$0.60 per share. The dividend is expected to increase at a 20 percent rate for the next four years. Afterwards, a more stable 12 percent growth rate can be assumed. If a 13 ...

• 13,132 Experts

## Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

### WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

### Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

### Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

### Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

### Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro