Question

Solve using excel

Q: Fx, Inc. is a volume manufacturer of high technology automotive mirrors (including cell and voice activation). FX is looking to expand their operations to add a second product line capable of producing 1.3 Million units per year. The equipment investment cost for this new operation is $23Million. The project falls under a 7-year MACRS class life, and the company estimates that the salvage value will be $2.7 Million at the end of the 6-year project. The average selling price for each mirror is $80 per unit.

Year 2019 2020 2021 2022 2023 2024

Volume 300,000 450,000 550,000 750,000 900,000 1,000,000

The material cost for each mirror is $20. The labor cost to produce each mirror is $13 with the additional carriable cost of manufacturing at $15 per unit. The fixed cost of manufacturing operations is $10 Million per year. Assume that FX has a tax rate of 25%. Also, assume that FX uses a MARR of 10% for all economic analysis.

a)What is the NPV of the investment? Do you accept this project?

b)If the company could borrow $15Million of the initial investment at 10%that will be paid in six installments, how would this change the NPV calculation? Do you recommend getting the loan?

c)Perform sensitive analysis on +/-20% change in volume, initial investment, unit variable cost, and salvage value from part b. Graph your data. Identify the key variables.