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Project 3 Mini case: PaddleX has decided to introduce a new line of paddle board. The board will sell for $875 each and have a variable cost of $430 each. The company has spent $150,000 for a...

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Project 3
Mini case:
PaddleX has decided to introduce a new line of paddle board. The board will sell for $875 each and have a variable cost of $430 each. The company has spent $150,000 for a marketing study that determine the company will sell 60,000 units of the new board per year for seven years. The marketing study also determined that the company will lose sales of 12,000 units of its high-priced board. The high-priced board sell at $1,100 each and have variable costs of $620. The company will also increase sales of its cheap board by 15,000 units. The cheap board sell for $400 each and have variable costs of $210 each. The fixed cost each year is $9,300,000. The company also spent $1,000,000 on R&D for the new board. The plant and equipment required will cost $29,400,000 and will be depreciated on a straight-line basis over 7 years to a salvage value of $0. The new board will also require an increase in net working capital of $1,400,000 that will be fully recovered at the end of the project. The tax rate is 21% and the cost of capital is 16 percent.
1. What are the incremental operating cash flows for this project?
2. What are the incremental cash flows associated with net working capital?
3. What are the incremental cash flows associated with investments?
4. What is the payback for this project?
5. What is the IRR of this project?
6. What is the NPV of this project?
 
Project Submission Instructions:
Please use an Excel file with all relevant information clearly laid out. Please first layout the project cash flows analysis for base-case with all relationship between variables captured with underlying Excel formula. That is, numbers that are not directly given by the case but are calculated based on case information shall be reflected in Excel as results of calculated number. Do not just paste numbers in the submitted file as results of your calculation elsewhere. Please try to lay out the information and steps in a clear and organized way. Make your answer to each of the above questions either to locate and identify by bold fonts and/or highlighting the cells.
Answered Same DayMar 05, 2022

Solution

Prateek answered on Mar 05 2022
66 Votes
Sheet1
        Paddle Board            High Priced Board            Low Priced Board
        Price Per Unit    875        Price Per Unit    1100        Price Per Unit    400
        VC Per Unit    430        VC Per Unit    620        VC Per Unit    210
        Marketing Cost    150000        Lost Sales (in Units)    12000        Increased Sales (in Units)    15000
        Number of Units Sold    60000
        Tax Rate    21%
        Cost of Capital    16%
        Year    0    1    2    3    4    5    6    7
        Revenue         52,500,000    52,500,000    52,500,000    52,500,000    52,500,000    52,500,000    52,500,000
        Marketing Study    -150,000
        Variable Cost        25,800,000    25,800,000    25,800,000    25,800,000    25,800,000    25,800,000    25,800,000
        Fixed...
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