QUESTION

Part 2 (Calculation)--------------- Capital Budgeting Analysis --------------- Before working on the calculations below, please study well the Example Case Study for Chapter 10 : Rainbow's New Premium Truck Camper and its solution (already posted as the module contents for Week Twelve [Week of March 28]) on Canvas. 

 

 

Your Name:                      (First Name then Last Name, need to be exactly the same as those that you use on Canvas.)

 

 

The following steps will walk you through on how you should do your calculations for this case study. You follow the instructions and provide your responses accordingly.

 

Please enter ALL the dollar amounts (including cash flows) below in whole numbers. 

 

Estimation of sunk costs

 

Provide below the amounts of the sunk costs you identified from the case description above.

 

1st sunk cost: $       being           cost  (Use exactly the same wording as in the case background information.)

 

2nd sunk cost: $       being        cost  (Use exactly the same wording as in the case background information.)

 

Total sunk costs = $ 

 

 

Net Sales Estimation: Use the formula stated below to calculate the net sales. 

 

Year t Net Sales

=Unit sales of new model for Year t × Price of new model

– Reduction in unit sales of existing model for Year t × Current price of existing model

– [(Unit sales of existing model for Year t if new model project is not launched – Reduction in unit sales of existing model if new model project is launched) × (Current price of existing model – Reduced price of existing model)]

 

 

Year 1 Net Sales

 

=  × $  –  × $ 

 

     – (  –  ) × ($  – $  )

 

= $          

 

 

Year 2 Net Sales

 

=  × $  –  × $ 

 

     – (  –  ) × ($  – $  )

 

= $ 

 

Year 3 Net Sales = $ 

 

Year 4 Net Sales = $ 

 

Year 5 Net Sales = $ 

 

 

Variable Cost Estimation: Use the formula stated below to calculate the variable costs. 

 

Year t Variable costs

=   Unit sales of new model for Year t × Variable cost per unit of new model

   – Reduction in unit sales of existing model for Year t × Variable cost per unit of existing model

      

Year 1 Variable costs

=  × $  –  × $ 

=$ 

      

Year 2 Variable costs

=  × $  –  × $ 

=$    

    

Year 3 Variable costs =$    

Year 4 Variable costs =$    

Year 5 Variable costs =$    

 

Depreciation Estimation: Use the formula stated below to calculate the depreciation expenses. 

 

Depreciation of Year t   = Cost of equipment × MACRS percentage for Year t

 [For all MACRS percentages in this part, enter as a decimal number with 4 decimal places.]     

 

Depreciation of Year 1  = $     ×     =$     

Depreciation of Year 2  = $     ×     =$      

Depreciation of Year 3  = $     ×     =$    

Depreciation of Year 4  = $     ×     =$ 

Depreciation of Year 5  = $    ×    =$ 

 

Net Working Capital Estimation: Use the formula stated below to calculate the net working capital requirements. 

 

NWC for Year t   = NWC Required Percentage × Net sales of Year t

[For the NWC required percentage in this part, enter as a decimal number with 2 decimal places.]       

 

NWC for Year 1   =     × $     =$ 

NWC for Year 2   =     × $     =$ 

NWC for Year 3   =     × $     =$ 

NWC for Year 4   =     × $     =$ 

NWC for Year 5   =  $ 

 

CASH FLOW ESTIMATION: Complete the following table below.

 

	Year 1	Year 2	Year 3	Year  4	Year  5
Sales	$	$	$	$	$
VC	$	$	$	$	$
Fixed costs	$	$	$	$	$
Dep	$	$	$	$	$
EBT	$	$	$	$	$
Taxes (35%)	$	$	$	$	$
NI	$	$	$	$	$
+ Dep	$	$	$	$	$
OCF	$	$	$	$	$
NWC
Beg	$	$	$	$	$
–End	$	$	$	$	$
NWC CF	$	$	$	$	$
NCF	$	$	$	$	$

 

Estimation of total Year 5 cash flow: Provide your responses to the following. 

 

At the end of the project's 5-year life,

 

Accumulated depreciation of equipment = $ 

Book value of equipment = $ 

Market value of equipment = $ 

Tax associated with sale of equipment = $   [Enter as a positive number if tax liability or as a negative number if tax credit.]

  

CF on sale of equipment = $ 

  

Total Year 5 cash flow = $    

 

Hint : Net CF (Net cash flow) = OCF (Operating cash flow) + NWC CF (Net working capital cash flow)

Year 1 through Year 4 cash flow = Net CF of the individual years.

Year 5 cash flow = Net CF of Year 5 + CF on sales of equipment.  

 

Evaluation of Project: Fill out the following tables. 

 

Year	Cash flow
0	$
1	$
2	$
3	$
4	$
5	$

 

(Do not round your calculations. Round your answers below to the number of decimal places specified.)

 

Evaluation Method
Payback	years (2 decimal places)
PI (Profitability Index)	(2 decimal places)
IRR (Internal Rate of Return)	% (2 decimal places)
NPV (Net Present Value)	$  (whole number with no decimal place)

 

(Enter "999" for Payback if the project will not payback. The "999" you provided does not mean that the project takes 999 years to payback. It is just that you tell the system that the project will not payback.)

 

***** When you have done all your calculations correctly, you need to go back to Canvas to complete Part 3 (Essay/Analysis) of this case study.