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Capstone Turbine Corporation is the world's leading provider of micro-turbine- based MicroCHP (combined heat and power) systems for clean, continuous, distributed-generation electricity. The MicroCHP unit is a compact turbine gen- erator that delivers electricity on-site or close to the point where it is needed. Designed to operate on a variety of gaseous and liquid fuels, this form of distributed- generation technology first debuted in 1998 for commercial use. Capstone is considering marketing a modified but downsized version of the system unit for residential use, primarily for vacation properties in remote places. The project requires an initial investment of $55 million, but Capstone managers are uneasy about this project because too many uncertain elements have not been considered in the analysis. Two primary factors that are difficult to estimate are the initial market size and how the market size will grow over the life of the project. The company has prepared the following financial data related to the project: Low Mokt Likely Key Cash Flow Variables Initial market size (units), year 1 High 1,000 1,500 2,000 Market growth rate (annual) 3% 5% 8% Unit price $72,000 $80,000 $86,000 Unit variable cost $56,000 $60,000 $65,000 short, as the technology changes in the energy sector are evolving rapidly. The firm's marginal tax rate is 40%, and its MARR is known to be 15%. Fixed cost (annual) excluding depreciation $6,500,000 $8,000,000 $9,000,000 Salvage value $4,000,000 $7,000,000 $8,000,000 (a) Develop the cash flow series over the project life based on the assumption of most likely estimates. The initial investment can be depreciated on a seven-year MACRS, and the project is expected to have an economic service life of five years. The product life is relatively (b) Conduct a sensitivity analysis for each variable and develop a sensitivity graph.

Capstone Turbine Corporation is the world's leading provider of micro-turbine- based MicroCHP (combined heat and power) systems for clean, continuous, distributed-generation electricity. The MicroCHP unit is a compact turbine gen- erator that delivers electricity on-site or close to the point where it is needed. Designed to operate on a variety of gaseous and liquid fuels, this form of distributed- generation technology first debuted in 1998 for commercial use. Capstone is considering marketing a modified but downsized version of the system unit for residential use, primarily for vacation properties in remote places. The project requires an initial investment of $55 million, but Capstone managers are uneasy about this project because too many uncertain elements have not been considered in the analysis. Two primary factors that are difficult to estimate are the initial market size and how the market size will grow over the life of the project. The company has prepared the following financial data related to the project: Low Mokt Likely Key Cash Flow Variables Initial market size (units), year 1 High 1,000 1,500 2,000 Market growth rate (annual) 3% 5% 8% Unit price $72,000 $80,000 $86,000 Unit variable cost $56,000 $60,000 $65,000 short, as the technology changes in the energy sector are evolving rapidly. The firm's marginal tax rate is 40%, and its MARR is known to be 15%. Fixed cost (annual) excluding depreciation $6,500,000 $8,000,000 $9,000,000 Salvage value $4,000,000 $7,000,000 $8,000,000 (a) Develop the cash flow series over the project life based on the assumption of most likely estimates. The initial investment can be depreciated on a seven-year MACRS, and the project is expected to have an economic service life of five years. The product life is relatively (b) Conduct a sensitivity analysis for each variable and develop a sensitivity graph.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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From the sensitivity analysis discussed in the given problem. Capstone's managers are convinced that the NPW is most sensitive to changes in unit price. Determine the unit price to break even.

Capstone Turbine Corporation is the world's leading provider of micro-turbine- based MicroCHP (combined heat and power) systems for clean, continuous, distributed-generation electricity. The MicroCHP unit is a compact turbine gen- erator that delivers electricity on-site or close to the point where it is needed. Designed to operate on a variety of gaseous and liquid fuels, this form of distributed- generation technology first debuted in 1998 for commercial use. Capstone is considering marketing a modified but downsized version of the system unit for residential use, primarily for vacation properties in remote places. The project requires an initial investment of $55 million, but Capstone managers are uneasy about this project because too many uncertain elements have not been considered in the analysis. Two primary factors that are difficult to estimate are the initial market size and how the market size will grow over the life of the project. The company has prepared the following financial data related to the project: Low Mokt Likely Key Cash Flow Variables Initial market size (units), year 1 High 1,000 1,500 2,000 Market growth rate (annual) 3% 5% 8% Unit price $72,000 $80,000 $86,000 Unit variable cost $56,000 $60,000 $65,000 short, as the technology changes in the energy sector are evolving rapidly. The firm's marginal tax rate is 40%, and its MARR is known to be 15%. Fixed cost (annual) excluding depreciation $6,500,000 $8,000,000 $9,000,000 Salvage value $4,000,000 $7,000,000 $8,000,000 (a) Develop the cash flow series over the project life based on the assumption of most likely estimates. The initial investment can be depreciated on a seven-year MACRS, and the project is expected to have an economic service life of five years. The product life is relatively (b) Conduct a sensitivity analysis for each variable and develop a sensitivity graph.
Transcribed Image Text:Capstone Turbine Corporation is the world's leading provider of micro-turbine- based MicroCHP (combined heat and power) systems for clean, continuous, distributed-generation electricity. The MicroCHP unit is a compact turbine gen- erator that delivers electricity on-site or close to the point where it is needed. Designed to operate on a variety of gaseous and liquid fuels, this form of distributed- generation technology first debuted in 1998 for commercial use. Capstone is considering marketing a modified but downsized version of the system unit for residential use, primarily for vacation properties in remote places. The project requires an initial investment of $55 million, but Capstone managers are uneasy about this project because too many uncertain elements have not been considered in the analysis. Two primary factors that are difficult to estimate are the initial market size and how the market size will grow over the life of the project. The company has prepared the following financial data related to the project: Low Mokt Likely Key Cash Flow Variables Initial market size (units), year 1 High 1,000 1,500 2,000 Market growth rate (annual) 3% 5% 8% Unit price $72,000 $80,000 $86,000 Unit variable cost $56,000 $60,000 $65,000 short, as the technology changes in the energy sector are evolving rapidly. The firm's marginal tax rate is 40%, and its MARR is known to be 15%. Fixed cost (annual) excluding depreciation $6,500,000 $8,000,000 $9,000,000 Salvage value $4,000,000 $7,000,000 $8,000,000 (a) Develop the cash flow series over the project life based on the assumption of most likely estimates. The initial investment can be depreciated on a seven-year MACRS, and the project is expected to have an economic service life of five years. The product life is relatively (b) Conduct a sensitivity analysis for each variable and develop a sensitivity graph.
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