Question

Finefodder's analysts have come up with the following revised estimates for the Gravensteln store: 

15 Investment Sales variable costs as % of Pessimistic Expected Optimistic $5,300,000 $5,100,000 $ 4,680,000 10,000,000 18,000,000 22,000,000 Print 75 73 71 ReferencesFixed cost $ 2.200,000 $ 2.100,000 S 1900,000 

Assume the project life is 12 years, the tax rate is 40%, the discount rate is depreciation method is straight-line over the project's life. Conduct a sensitivity analysis for each variable and range and compute the NPV for each. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. Negative amounts should be indicated by a minus sign. Enter your answers in dollars, not in millions.) 8%, and the NPV of Gravenstein Store Investment Sales Variable costs as % of Fixed cost

Answer 1

Sale Veriable cost: 10000000 75/100 Fixed cost Cash inflow before Add: Tax benefit of Depreciation- (5300000/12)*40/100 Cash inflow before Tax Less Tax: 300000 40/100 Net cash inflow 2200000 300000 176667 476667 120000 356667 reciation and Tax Sale Veriable cost: 18000000 73/100 Fixed cost Cash intiow before Depreciation and Tax Add: Tax benefit of Depreciation- Cash inflow before Tax Less Tax: 276000 40/100 Net cash inflow 18000000 13140000 2100000 2760000 170000 2930000 1104000 1826000 12) 40/100 Sale Veriable cost: 22000000 71/100 Fixed cost Cash intiow before Depreciation and Tax Add: Tax benefit of Depreciation- Cash inflow before Tax Less Tax: 4480000 40/100 Net cash inflow 22000000 15620000 1900000 12) 40/100 156000 4636000 1792000 2844000 By Analysing above Optimistic looks better of rest two i.e. higher Net cash flow