Range Assume the project life is 12 years, the tax rate is 40%, the discount rat
ID: 2732235 • Letter: R
Question
Range
Assume the project life is 12 years, the tax rate is 40%, the discount rate is 8%, and the 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.)
NPV of Gravenstein Store
Explanation / Answer
Sensitivity analysis on investment amount
Sales
$ 18,000,000
$ 18,000,000
$ 18,000,000
Variable costs as % of sales
$ 12,420,000
$ 12,420,000
$ 12,420,000
Fixed cost
$ 3,300,000
$ 3,300,000
$ 3,300,000
Depreciation
$ 380,000
$ 370,000
$ 360,000
Income before taxes
$ 1,900,000
$ 1,910,000
$ 1,920,000
Taxes
760000
764000
768000
Net income
$ 1,140,000
$ 1,146,000
$ 1,152,000
Add: Depreciation
$ 380,000
$ 370,000
$ 360,000
Cash flows
$ 1,520,000
$ 1,516,000
$ 1,512,000
PVAF (8%,12)
7.5361
7.5361
7.5361
Present value of cash flows
$ 11,454,838.59
$ 11,424,694.27
$ 11,394,549.96
Investment
-$ 4,560,000
-$ 4,440,000
-$ 4,320,000
Net present value
$ 6,894,838.59
$ 6,984,694.27
$ 7,074,549.96
Sensitivity analysis on sales
Sales
$ 12,000,000
$ 18,000,000
$ 22,000,000
Variable costs as % of sales
$ 12,420,000
$ 12,420,000
$ 12,420,000
Fixed cost
$ 3,300,000
$ 3,300,000
$ 3,300,000
Depreciation
$ 370,000
$ 370,000
$ 370,000
Income before taxes
-$ 4,090,000
$ 1,910,000
$ 5,910,000
Taxes
-1636000
764000
2364000
Net income
-$ 2,454,000
$ 1,146,000
$ 3,546,000
Add: Depreciation
$ 370,000
$ 370,000
$ 370,000
Cash flows
-$ 2,084,000
$ 1,516,000
$ 3,916,000
PVAF (8%,12)
7.5361
7.5361
7.5361
Present value of cash flows
-$ 15,705,186.59
$ 11,424,694.27
$ 29,511,281.51
Investment
-$ 4,440,000
-$ 4,440,000
-$ 4,440,000
Net present value
-$ 20,145,186.59
$ 6,984,694.27
$ 25,071,281.51
Sensitivity analysis on variable costs
Sales
$ 18,000,000
$ 18,000,000
$ 18,000,000
Variable costs as % of sales
$ 12,600,000
$ 12,420,000
$ 12,060,000
Fixed cost
$ 3,300,000
$ 3,300,000
$ 3,300,000
Depreciation
$ 370,000
$ 370,000
$ 370,000
Income before taxes
$ 1,730,000
$ 1,910,000
$ 2,270,000
Taxes
692000
764000
908000
Net income
$ 1,038,000
$ 1,146,000
$ 1,362,000
Add: Depreciation
$ 370,000
$ 370,000
$ 370,000
Cash flows
$ 1,408,000
$ 1,516,000
$ 1,732,000
PVAF (8%,12)
7.5361
7.5361
7.5361
Present value of cash flows
$ 10,610,797.85
$ 11,424,694.27
$ 13,052,487.13
Investment
-$ 4,440,000
-$ 4,440,000
-$ 4,440,000
Net present value
$ 6,170,797.85
$ 6,984,694.27
$ 8,612,487.13
Sensitivity analysis on fixed costs
Sales
$ 18,000,000
$ 18,000,000
$ 18,000,000
Variable costs as % of sales
$ 12,420,000
$ 12,420,000
$ 12,420,000
Fixed cost
$ 3,600,000
$ 3,300,000
$ 3,100,000
Depreciation
$ 370,000
$ 370,000
$ 370,000
Income before taxes
$ 1,610,000
$ 1,910,000
$ 2,110,000
Taxes
644000
764000
844000
Net income
$ 966,000
$ 1,146,000
$ 1,266,000
Add: Depreciation
$ 370,000
$ 370,000
$ 370,000
Cash flows
$ 1,336,000
$ 1,516,000
$ 1,636,000
PVAF (8%,12)
7.5361
7.5361
7.5361
Present value of cash flows
$ 10,068,200.23
$ 11,424,694.27
$ 12,329,023.64
Investment
-$ 4,440,000
-$ 4,440,000
-$ 4,440,000
Net present value
$ 5,628,200.23
$ 6,984,694.27
$ 7,889,023.64
Sensitivity analysis on investment amount
Sales
$ 18,000,000
$ 18,000,000
$ 18,000,000
Variable costs as % of sales
$ 12,420,000
$ 12,420,000
$ 12,420,000
Fixed cost
$ 3,300,000
$ 3,300,000
$ 3,300,000
Depreciation
$ 380,000
$ 370,000
$ 360,000
Income before taxes
$ 1,900,000
$ 1,910,000
$ 1,920,000
Taxes
760000
764000
768000
Net income
$ 1,140,000
$ 1,146,000
$ 1,152,000
Add: Depreciation
$ 380,000
$ 370,000
$ 360,000
Cash flows
$ 1,520,000
$ 1,516,000
$ 1,512,000
PVAF (8%,12)
7.5361
7.5361
7.5361
Present value of cash flows
$ 11,454,838.59
$ 11,424,694.27
$ 11,394,549.96
Investment
-$ 4,560,000
-$ 4,440,000
-$ 4,320,000
Net present value
$ 6,894,838.59
$ 6,984,694.27
$ 7,074,549.96
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