The firm expects a required investment of 15 million at the beginning of the project (t=0) in manufacturing equipment. This will be depreciated according to the MARCS schedule for 7 years lived assets. The tax rate is 34% and the firm will discount project cash flows at 21% (the discount rate reflects the risk inthis venture). Addtional inputs are as follows:
Initial Market Size(at t=1) 300,000 units
Growth in market size after t=1 8%
Market share 5%
Unit price 5,250
Unit variable cost 3,400
Fixed cost 20,000,0000
Marketing expense as a percentage of revenue 4%
The firm will simplify the NWC effects by assuming an increase in NWC at the project beginning (t=0) of $5 million, and a return of that NWC at project end (t=10), with no other NWC changes. For this problem we will assume that the firm expects that the technology will be obsolete in ten years and that the project will be abandoned with no addtional costs.
You are to build a working spreadsheet for this assignment.