The expected annual free cash flow for a GPS tracker investment is computed as f

Question

The expected annual free cash flow for a GPS tracker investment is computed as follows:

A. Construct a spreadsheet model to compute free cash flow that relies on the following assumptions or estimates:

B. What level of annual unit sales does it take for the investment to achieve a zero NPV? Use your spreadsheet model to answer this question (Hint: Use the Goal seek function in Excel).

C. If unit sales were 15% higher than the base case, what unit price would it take for the investment to achieve a zero NPV?

REVENUES $ 1,250,000 Variable Cost 750,000 Fixed Expenses 250,000 GROSS PROFIT $ 250,000 Depreciation 100,000 NET OPERATING INCOME $ 150,000 Income Tax 51,000 NOPAT $ 99,000 Plus: Depreciation 100,000 Less: CAPEX - Less: Working Capital Investment - Free Cash Flow $ 199,000

Explanation / Answer

Answer: Calculation of NPV:

Answer:B x is unit sales

0=-1000000+[x(125-75)-250000-100000)(1-0.34)+100000]*6.14457

0=-1,000,000+[50x-350000)(0.66)+100000]*6.14457

0=-1000000+[33x-231000)+100000]*6.14457

0=-1000000+[33x-131000]*6.14457

0=-1000000+[202.77081x-804938.67]

1804938.67=202.77081x

x=8901.37 units

Answer:C x is unit Price

0=-1000000+[11500(x-75)-250000-100000)(1-0.34)+100000]*6.14457

0=-1,000,000+[11500x-862500-350000)(0.66)+100000]*6.14457

0=-1000000+[7590x-800250)+100000]*6.14457

0=-1000000+(46637.29x-4302735.1425)

x=$113.70

Particulars Year P.V.F (10%) Amount ($) PV ($) Intial cost of equipment 0 1 -1000000 -1000000 Cash inflow 10-Jan 6.14457 199000 1222769 NPV 222769.4

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