Scenario Analysis: Estimated Cash Flows for the Segway People Mover
Base Case Year 0 Years 1-12 BicycleScenarion Year 0 Years 1-12
Investmenet -5,400 Investment -5,400
Sales 16,000 Sales
Variable Cost 13,000 Variable Cost
Fixed cost 2,000 Fixed cost
Depreciati on 450 Depreciay on
Preas profit 550 Pretax Profit
Taxes @ 40% 220 Taxes @ 40%
Profit after tax 330 Profit after tax
Operation cash flow 780 Operating cash flow
Net cash flow 780 Net Cahs Flow
NPV (OCCof 9%): $185.37 -5,400 NPV (OCCof 9%): -5,400
Consider the scenario in which a competing form of transportation, the bicycle, causes sales to drop to 90% of expected sales from the base case.
a. Fill in the table on the right, including NPV
b. What is maximum opportunity cost of capital in both the Base Case and the Bicycle Scenario such that you should undertake the Segway People Mover Project?