Year 1 Sales (Revenues in $) Cost of Goods Sold (50% of Sales) Depreciation EBIT 100,000 50,000 30,000 20,000 100,000 50,000 30,000 20,000 4200 100,000 50,000 30,000 20,000 Taxes (21%) Unlevered Net Income 4200 4200 15,800 Depreciation Changes to Working Capital Capital Expenditures 15,800 30,000 15,800 30,000 -10,000 30,000 5000 5000 -90,000 phany would like to know how sensitive the project's NPV is to changes in the discount . How much can the discount rate vary before the NPV reaches zero?
Year 1 Sales (Revenues in $) Cost of Goods Sold (50% of Sales) Depreciation EBIT 100,000 50,000 30,000 20,000 100,000 50,000 30,000 20,000 4200 100,000 50,000 30,000 20,000 Taxes (21%) Unlevered Net Income 4200 4200 15,800 Depreciation Changes to Working Capital Capital Expenditures 15,800 30,000 15,800 30,000 -10,000 30,000 5000 5000 -90,000 phany would like to know how sensitive the project's NPV is to changes in the discount . How much can the discount rate vary before the NPV reaches zero?
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 1PA: Your company is planning to purchase a new log splitter for is lawn and garden business. The new...
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Question
![Epiphany Industries is considering a new capital budgeting project that will last for three years.
Epiphany plans on using a cost of capital of 12% to evaluate this project. Based on extensive
research, it has prepared the following incremental cash flow projections:
Year
1
3
Sales (Revenues in $)
Cost of Goods Sold (50% of Sales)
Depreciation
100,000
50,000
30,000
20,000
100,000
50,000
30,000
20,000
100,000
50,000
30,000
20,000
EBIT
Taxes (21%)
Unlevered Net Income
4200
4200
4200
15,800
Depreciation
Changes to Working Capital
Capital Expenditures
15,800
30,000
5000
15,800
30,000
-10,000
30,000
5000
-90,000
Epiphany would like to know how sensitive the project's NPV is to changes in the discount
rate. How much can the discount rate vary before the NPV reaches zero?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbc61a5d7-7e46-42e0-9d49-1ea61d0fa8b1%2F565439fb-21a0-4574-b71c-5dd49b4760ed%2Ftrb2ml_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Epiphany Industries is considering a new capital budgeting project that will last for three years.
Epiphany plans on using a cost of capital of 12% to evaluate this project. Based on extensive
research, it has prepared the following incremental cash flow projections:
Year
1
3
Sales (Revenues in $)
Cost of Goods Sold (50% of Sales)
Depreciation
100,000
50,000
30,000
20,000
100,000
50,000
30,000
20,000
100,000
50,000
30,000
20,000
EBIT
Taxes (21%)
Unlevered Net Income
4200
4200
4200
15,800
Depreciation
Changes to Working Capital
Capital Expenditures
15,800
30,000
5000
15,800
30,000
-10,000
30,000
5000
-90,000
Epiphany would like to know how sensitive the project's NPV is to changes in the discount
rate. How much can the discount rate vary before the NPV reaches zero?
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