Question

P13-7 (similar to) Question Help (Related to Checkpoint 13.2 and Checkpoint 13.3) (Comprehensive risk analysis) Blinkeria is considering introducing a new line of hand scanners that can be used to copy material and then download it into a personal computer. These scanners are expected to sell for an average price of $104 each, and the company analysts performing the analysis expect that the firm can sell 104,000 units per year at this price for a period of five years, after which time they exxpect demand for the product to end as a result of new technology. In addition, variable costs are expected to be $21 per unit and fixed costs, not including depreciation, are forecast to be $1,010,000 per year. To manufacture this product, Blinkeria will need to buy a computerized production machine for $10.3 million that has no residual or salvage value, and will have an expected life of five years. In addition, the firm expects it will have to invest an additional $309,000 in working capital to support the new business. Other pertinent information concerning the business venture is provided here: a. Calculate the project's NPV b. Determine the sensitivity of the project's NPV to a(n) 11 percent decrease in the numbek of units sold. c. Determine the sensitivity of the project's NPV to a(n) 11 percent decrease in the price per unit. d. Determine the sensitivity of the project's NPV to a(n) 11 percent increase in the variable cost per unit. natarmina the caneithihe.of tha nrniact'e MIDV to ain) 11 narcant incranca in the annunl fivad anaratinn.coete (Round to the nearest dollar.) a. The NPV for the base-case will be $ Enter your answer in the answer box and then click Check Answer.

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Answer 1

Table 1: Project NPV 10,816,000 material cost (Variable) 2,184,000 Revenue Dicsount Rate 9.009 Revenue Fxed cost Depreciation Year Count Project Cost/ renovation ol (10,300,000 Raw Material Cost variable) 10,816.000 10,616,000 10,616,000 10.816,000 10,616,000 (2,184,000) 12.114.000] (2,184,000) 12,184,000) (2,184,000)| (1,010,000)| 1.010.00011 11.010.0001 (1,010,000)| (1,010,000) (2,060,000il 12.050.000il (2,050,000) (2,060,000)| (2,050,000) 5.552.000 5.562.000 5,562,000 5,562,000 5,562,000 11.091.080il 11.091.080) (1,891,080) 11.691.080) (1,891,080) Table 2: Project NPV with 11% decrease in nuber of units sold Dicsount Rate Revenue material cost (Variable) 9,626,240 1,943,750 Revenue Fored Cost Depreciation PST Year Count Project Cost/ renovation ol(10,300,000 Raw Material Cost Variable) 9,626,240 9,626,240 9,625, 240 9,626,240 9.626,240 1,943,750 (1,943.7601 (1.943.76011 (1,943,760) 11.943.76011 (2,010,000 (1,010,000 (1,010,000)| 110100001 (1,010,000) 11010.000il (2,050,000 (2,060,000 (2,060,000) 12,060,000 12.050.000l 4,512,450 4,612,480 4,612.480 4,612 480 4.612.480 1,568,243) (1,568,243 (1,568,243) 1.568.243) 1.568.2431 Table 3: Project NPV with 11% decrease in sales Price Revenue Dicsount Rate 9.000 material cost (Variable) 9,626,240 2,184,000 Revenue Forced cost Depreciation PST Year Count Project Cost/ renovation ol (10,300,000 Raw Material Cost Variable) 9,626,240 9,526,240 9,626,240 9,625, 240 9,526,240 (2,184,000) 2,184,000) (2,184,000 (2,184,000) (2,164,000) (1,010,000)| (1,010,000)| 2,010,000 (1,010,000)| (1,010,000)| (2,060,000) (2,060,000) (2,050,000 (2,050,000) (2,050,000) 4,372,240 4,372,240 4,372,240 4,372,240 4,372,240 (1,485,562) (1,485,562) 1,485,562) (1,485,562) (1,485,562) L

Table 4: Project NPV with 11% increase in variable cost Dicsount Rate Revenue material cost (Variable) 10,816,000 2,424,240 L Revenue Fored Cost Depreciation PST Year Count Project Cost/ renovation ol (10,300,000) Raw Material Cost (variable) 2 31 10.216.000 10,616,000 10,816,000 10.616.000 10,616.000 12.424. 24011 (2,424,240) 12,424,24011 12.424. 2401 (2,424,240) 1 010.000ll (1,010,000) (1,010,000 11.010.00011 11.010.000 12.050.00011 (2,050,000) (2,050,000 12.050.00011 (2,060,000) 5.321.750 5,321,750 5,321,750 5.321.750 5,321,760 1.009.398) 1,809,398) 1,809,398) 1.009.398) (1,309,398) 51 Table 5: 11 % increase in fixed cost Revenue 10,815,000 material cost Variable) 2,184,000 Dicsount Rate Revenue Fixed cost Depreciation PST Year Count Project Cost renovation (10,300,000 Raw Material Cost Variable 10,616,000 10,616,000 10,616,000 10,616,000 10,616,000 (2,184,000) (2,164,000) (2,184,000)| 2,184,000) (2,184,000)| (1,121,100) (1,121,100) (1,121,100) (1.121.10011 (1,121,100)| (2,050,000) (2,060,000) (2,050,000) 12.060,00011 (2,050,000) 5,450,900 5,450,900 5,450,900 5.450.900 5,450,900 (1,853,305) (1,853,305) (1,853,306) 11.853.3051 (1,853,305) Table 6: Project NPV Worst case Scenario Revenue 6,988,21B Dicsount Rate 9.00% material cost Variable) 2,358,7201 Year Count Project Cost/ Revenue Raw Material Forced cost Depreciation PBT renovation Cost (variable) ol (10,300,000 6,988,218 2,358,720) (1,222,100)| (2,060,000) 1,347,398 6,988,218 12,358,720) 11,222,100) 12,050,000 1.347.390 6,988,218 (2,358,720) (1.222.1001l 12.060.00011 1 347 398 1 6,988,21B (2,358,720) (1,222, 100) (2,060,000 1.347.398 6,988,218 (2,358,720) (1,222,100)| (2,050,000)| 1,347,398 1453.1151 1458,115) 458 115 4 58.1151 458,115

Table 7: Project NPV Best Case scenario Dicsount Rate 9.0099 Revenue material cost Variable) 17,022,221 2,009,260 Revenue Foved Cost Depreciation PBT Year Count Project Cost/ renovation 0 10,300,000 Raw Material Cost Variable) 17,022,221 17,022,221 17,022,221 17,022.221 17,022,221 (2,009,280) 2,009,280) (2,009, 280) (2,009,280) 2,009,280)| (929,200)| (929,200)| 1929,200 (929,200)| (929,200)| (2,050,000)| (2,050,000) 12.060.000ll (2,050,000)| (2,050,000) 12,023,741 12,023,741 12.023.741 12,023,741 12,023,741 (4,088,072) (4,068,072) 14.068,072) [4,088,072) (4,088,072)