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3.1 Perform a scenario analysis on the data provided Case Study: Assume that the company, where you are working as a team in Financial Department, is considering a potential project with a new product that is expected to sell for an average price of $22 per unit and the company expects it can sell 650 000 unit per year at this price for a period of 4 years. Launching this project will require purchase of a $3 500 000 equipment that has residual value in four years of $500 000 and adding $ 850 000 in working capital which is expected to be fully retrieved at the end of the project. Other information is available below: Depreciation method: straight line Variable cost per unit: $17 Cash fixed costs per year: $450 000 Discount rate: 10% Tax Rate: 30% Do a scenario analysis with cash flows of the assumed project to determine the sensitivity of the project's NPV to different scenarios that are defined in terms of the estimated values for each of the project's value drivers. Please work on two scenarios corresponding to the worst- and best-case outcomes for the project. You need to provide your results in (a) relevant tables: Worst case: Unit sales decrease by 20%; price per unit decreases by 20%; variable cost per unit increases by 20 %; cash fixed cost per year increases by $100 000 Best case: Unit sales increase by 20%; price per unit increases by 20%; variable cost per unit decreases by 20%; cash fixed cost per year decreases by $100 000 Based on the scenario analysis outcome, draw relevant conclusion about project NPV's sensitivity. 3.2 Perform an NPV break-even analysis Perform an NPV break even analysis for the case where price per unit decreases by 20 % to identify the number of unit sales that is needed for the project to get break-even. Trial and error method or What - If Analysis with excel spread sheet is to be used.

Answer 1

1. 
   200000 Revenue 180000 Break-even Point 160000 140000 Total Costs (Variable + Fixed) 120000 - Dollars Fixed Costs 100000 80000 60000 40000 20000 0 2000 4000 6000 8000 10000 12000 14000 16000 18000 Number of units
   
   Page No. Date Break Even analysis. BEP2 fined cost PN Ratio contribution. for percentage fined cost Pulation in unit a fined last contribution. this buse a fined Costa 45oonotu50000 1200000 Pu Ratio a Contribution & 100 sales, sale - variable lost contributions solution of this Conse. 1200000. 1-820000/14 는 Z 84, 86.562942 luvnit 6.65 Puration 20 000 14.14% 12870000 A Notebook
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   asale 650000 unit & $122 - 10% of 221 19,8 = 128, 70,000, let Coeduct) variable cont 650000 whit& $17 - (1,10, 56000) contribution. less. fined cont. Debrication, 350oooo (456000) 4 years, Cash fired court (45oool Swining Refore interest and Tan. 620000 Tan 30% of 620000 124000 434000 Earning After Tax worgt Case, Bert ause. Actual ineresepuran Actual Muerese / Decresche sale. 65oooo 3, 20). 5200000 sale 650000 17 8000 Variable 17 Troll 20.4. variable 127 13.6 buth fincant 460000 500000 fan fincast 450000 3500do Assumtion. Discount Rate lause 104. on Both borde. Effect Effeet. teile 520000219.8: 10296.000 vale 780000 x 19. 8. 154 44000 rcy veniable 520000 x 20.4 = (10608000) lesvorabla govox 13 6 = 10608000 contributery 13,22,000) contribution -4836000 Defriciation, Cash fined cast (156000) Depriciation SOUD with fined Colt (1562000) 150000 3 Soome 37,36000 NPNE 15 62000x100 - - 15.17%/N/0₂ 3736000 x 100 of 24.19 15444000 positive (1296000 & Negative DELTA Notebook