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Sensitivity Analysis

Impact of Sales Impact of COGS


Sales NPV COGS NPV
$5,025,968 5,025,968
100,000 $5,025,968 110 5,025,968
70,000 ($2,423,131) 120 3,252,373
130,000 $12,475,067 100 6,799,563

Impact of Price Impact of NWC


Price NPV NWC NPV
$5,025,968 5,025,968
260 $5,025,968 2100000 5,025,968
240 $1,478,778 3000000 4,939,871
280 $8,573,158 4000000 4,844,208
Analysis
Year 0 1 2 3 4
Incremental Earnings Forecast
Sales $0 $23,500,000 $23,500,000 $23,500,000 $23,500,000
Cost of Goods Sold $0 $9,500,000 $9,500,000 $9,500,000 $9,500,000
Gross Profit $0 $14,000,000 $14,000,000 $14,000,000 $14,000,000
Selling, General, and Admin. $0 $3,000,000 $3,000,000 $3,000,000 $3,000,000
Research and Development $15,000,000 $0 $0 $0 $0
Depreciation $0 $1,500,000 $1,500,000 $1,500,000 $1,500,000
EBIT ($15,000,000) $9,500,000 $9,500,000 $9,500,000 $9,500,000
Income Tax ($6,000,000) $3,800,000 $3,800,000 $3,800,000 $3,800,000
Unlevered Net Income ($9,000,000) $5,700,000 $5,700,000 $5,700,000 $5,700,000

Free Cash Flow


Plus: Depreciation $0 $1,500,000 $1,500,000 $1,500,000 $1,500,000
Less: Capital Expenditures ($7,500,000) $0 $0 $0 $0
Less: Increase in NWC ($2,100,000) $0 $0 $0
Free Cash Flow ($16,500,000) $5,100,000 $7,200,000 $7,200,000 $7,200,000

NPV $5,025,968

Calculations Area
Sales
Sales of new router $26,000,000 $26,000,000 $26,000,000 $26,000,000
Canibalized Sales $2,500,000 $2,500,000 $2,500,000 $2,500,000

Cost of Goods Sold


COGS for New Router $11,000,000 $11,000,000 $11,000,000 $11,000,000
COGS for Canibilized Sales $1,500,000 $1,500,000 $1,500,000 $1,500,000

Net Working Capital Requirements


Cash Requirements
Inventory
Receiveables $0 $3,525,000 $3,525,000 $3,525,000 $3,525,000
Payables $0 $1,425,000 $1,425,000 $1,425,000 $1,425,000
Net Working Capital $0 $2,100,000 $2,100,000 $2,100,000 $2,100,000

PV of Free Cash Flow (Eq) ($16,500,000) $4,553,571 $5,739,796 $5,124,818 $4,575,730


PV of Free Cash Flow (Funct) ($16,500,000) $4,553,571 $5,739,796 $5,124,818 $4,575,730

Data
Year 0 1 2 3 4
Direct Effects
Unit Sales 100,000 100,000 100,000 100,000
Wholesale Price $260 $260 $260 $260
Design Costs $5,000,000
Production Cost $110 $110 $110 $110
Cost of Software Engineers $10,000,000
Cost of Lab Equipment $7,500,000
Depreciation % 0.2 0.2 0.2 0.2
Cost of Marketing and Support $2,800,000 $2,800,000 $2,800,000 $2,800,000
Tax Rate 0.4 0.4 0.4 0.4 0.4

Indirect Effects
Lost Rental $200,000 $200,000 $200,000 $200,000
Canibalization: % of Units 0.25 0.25 0.25 0.25
Canibalization: Sales Price $100 $100 $100 $100
Canibalization: Production Cost $60 $60 $60 $60

Working Capital Requirements


Cash Requirements
Inventory
Receiveables (% of sales) 0.15 0.15 0.15 0.15
Payables (% of sales) 0.15 0.15 0.15 0.15

Cost of Capital 0.12


Impact of Canibalization
Canibalization NPV
5,025,968
0.25 5,025,968
0.4 3,961,811
0.1 6,090,125

Impact of Cost of Capital


COC NPV
5,025,968
0.12 5,025,968
0.15 3,572,134
0.1 6,090,428

$0
$0
$0
$0
$0
$1,500,000
($1,500,000)
($600,000)
($900,000)

$1,500,000
$0
$2,100,000
$2,700,000

$0
$0

$0
$0

$0
$0
$0

$1,532,053
$1,532,053

0.2

0.4