Blooper’s analysts have come up with the following revised estimates for its mag
ID: 2790299 • Letter: B
Question
Blooper’s analysts have come up with the following revised estimates for its magnoosium mine:
Range
Conduct a sensitivity analysis for each variable and range and compute the NPV for each. Use Spreadsheet 10.1 and accompanying data as a starting point for the analysis. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Enter your answers in thousands rounded to the nearest whole dollar.)
Project NPV
Range
Pessimistic Optimistic Initial investment + 40 % – 25 % Revenues – 20 % + 20 % Variable costs + 25 % – 20 % Fixed cost + 40 % – 20 % Working capital + 40 % – 35 %Explanation / Answer
Answer : Optimsitic Scenario:
Pessimistic secnario
Optimistic secenario A. Inputs Initial investment ($ thousands) 7,500 Salvage value ($ thousands) 2,000 Initial revenues ($ thousands) 18,000 Variable costs (% of revenues) 40.00% Initial fixed costs ($ thousands) 3,200 Initial total expenses ($ thousands) Inflation rate (%) 5.00% Discount rate (%) 12.00% Receivables (% of sales) 16.70% Inventory (% of next year's costs) 15.00% Tax rate (%) 35.00% Year: 0 1 2 3 4 5 6 B. Fixed assets Investments in fixed assets 10,000 Sales of fixed assets 1,300 Cash flow from fixed assets -7,500 1,300 C. Operating cash flow Revenues 18,000 18,900 19,845 20,837 21,879 Variable expenses 5,760 6,048 6,350 6,668 7,001 Fixed expenses 3,200 3,360 3,528 3,704 3,890 Depreciation 1,033 1,033 1,033 1,033 1,033 Pretax profit 8,007 8,459 8,933 9,432 9,955 Tax 2,802 2,961 3,127 3,301 3,484 Profit after tax 5,204 5,498 5,807 6,131 6,471 Operating cash flow 6,238 6,531 6,840 7,164 7,504 D. Working capital Working capital 3,006 4,350 4,568 4,796 5,036 5,287 0 Change in working capital 3,006 1,344 218 228 240 252 -5,287 Cash flow from investment in working capital -3,006 -1,344 -218 -228 -240 -252 5,287 0.408 0.408 0.408 0.408 0.25 E. Project valuation Total project cash flow -10,506 4,894 6,314 6,612 6,924 7,252 6,587