Shane R. Rettberg
Table of Contents
PROFORMA STATEMENT 3 WORST & BEST CASE SCENARIOS 3
SENSITIVIY ANALYSIS 4
INTEREST EXPENSE 14
CASH BREAKEVEN 15
ACCOUTNING BREAKEVEN 16
FINANCIAL BREAKEVEN 17
INTERNAL RATE OF RETURN 18
NPV SENSITIVITY 19
OPERATING LEVERAGE 20
CONTINGENCY PLANNING 21
APPENDIX A 22-23
APPENDIX B 24-25
APPENDIX ...view middle of the document...
Essentially it costs too much to be able to produce each unit with a selling price for the market of $700.
Worst & Best Case Scenarios
We performed a pessimistic analysis at 15% below the expected number of sales forecasted (Appendix B). The normal scenario already resulted in a negative net present value, so we knew that a pessimistic outlook would be even more negative. The net present value under the pessimistic scenario resulted in a negative NPV of $13,919,682 with an IRR of 2.25%.
In our optimistic analysis we increased the sales forecast units by 15% to see how the project would fair if sales were more than originally expected (Appendix C). Even under the optimistic scenario using the given costs we came up with a negative net present value of $8,202,818 with an IRR of 9.36%.
Based upon our calculations using the given assumptions, there is no way the project should be undertaken as it would only cost the company a large amount of capital with no benefit.
In order to determine if the Football Mower project would even be viable we performed several sensitivity analyses using various sales numbers and costs by comparing them to determine at what level the project maybe profitable. We will go through each on in detail to explain what can possibly be done to save this project. We used the normal analysis assumptions with all calculations except when we normalized the sales price.
First we left all of the figures alone and only calculated what affects the change in the weighted average cost of capital (WACC) would have on the net present value. Our results are listed below.
AVERAGE COST OF CAPITAL
|NPV |WACC |% Change in NPV |% Change in WACC |
|1,304,262 |5.00% |103.76% |-20.00% |
|(49,036) |6.00% |2579.58% |-16.67% |
|(1,313,964) |7.00% |90.10% |-14.29% |
|(2,497,802) |8.00% |44.41% |-12.50% |
|(3,607,130) |9.00% |28.85% |-11.11% |
|(4,647,905) |10.00% |21.03% |-10.00% |
|(5,625,527) |11.00% |16.34% |-9.09% |
|(6,544,896) |12.00% |13.23% |-8.33% |
|(7,410,464) |13.00% |11.01% |-7.69% |
|(8,226,285) |14.00% |9.36% |-7.14% |
|(8,996,049) |15.00% |8.08% |-6.67% ...