Strong Works has a new product called GrowLeaf and it is projected to sell 39,000 units in year 1 and the unit volume is expected to increase by 12.5% annually each successive year throughout this 6 year project. It will sell for 135 dollars per unit.
The firm has 630,000 in fixed costs per year. Variable production costs will be 82 dollars per unit in year 1 and the variable unit cost will fall by 3% annually through the life of the project as the compan gain production efficiencies.
Strong Works will need to invest3,768,000 in capital equipment to produce GrowLeaf as well as 1,579,500 in inventory before it begins production. StrongWorks' total net working required each year will be 30% of next years sales. This equipment falls into the MACRS 5 year class and is not expected to have a salvage value.
- The effective tax rate is 38% and the required rate of return is 11.5% . What is the NPV of this project? Build a complete model using an OCF FCF template.
StrongWorks GrowLeaf Product
0 1 2 3 4 5 6
Sales Revenue
-Operating Costs
-Depreciation
=Earning Before Taxes
-Taxes
=Net Income
+Depreciation
=OCF
Capital Investments
Net Working Capital
Other
Free Cash Flow
Present Values
Depreciation Percentages
Book Value
Depreciation Expense
Accumulated Depreciation
Net Book Value
Tax Rate
WACC%
-Seeling Price of Equipment
-Net Book Value
=Gain (Loss) on sale
- Taxes Due
= Net Cash Flow
- Shaare Price: Before the announcement of thisproject StrongWorks stock traded at 39.87. Assuming that the two owners each own 150,000 shares and that they own all the shares outstanding what will StrongWorks new share price be as a result of this project being overtaken?