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    Please see the attached excel sheet. I tried to solve the problem but I need assistance to complete it. Please explain briefly.

    Smallerfacility (X) Larger facility (Y)

    Space 10,000 15,000
    Rent 100000 150000
    Additional cost choosing X Sales*0.15
    1st year weak sales 250,000
    1st year succesfull sales 600,000
    Probalility for success 0.7
    Probalility for failure 0.3
    promotion and miscellaneous expenses 30,000 50,000
    Tax 28%
    Inventory 100,000 200,000
    COGS Sales*0.60
    Other Variable costs 0.10*sales 0.10*sales
    Other fixed costs 40,000 60,000
    Required rate of return 10% 10

    Computing net income break even point
    Total revenue=Total fixed costs+Total Var.costs+NI
    Total revenue sales sales
    Fixed costs 240,000 410,000
    Variable costs 30,000+0.25* sales 50,000+0.10*sales
    Total costs 270,000+0.25*sales 460,000+0.10*sales
    BES = (sales-0.25 sales=270,000; sales=270,000/0.75) Similarly for larger facility in column D 360000 511111.1111

    Is the above answer correct ? Is it the correct approach? Do we need to take COGS too? Please let me know detailed approach/solution

    Cash flow calculation
    Sales (first year is half of those after the first year) 0.5*Sales
    Total costs 270,000+0.25*sales
    Pre-tax profit (Sales- Total costs) 270000-0.5*Sales
    Tax (270000-0.5*Sales)*0.28
    Net Profit (Cash flow) (270000-0.5*Sales)-(270,0000-0.5*sales)*0.28

    Annuity Factor 6.14
    PV(CF) ((270000-0.5*Sales)-(270,0000-0.5*sales)*0.28)*6.14
    NPV (((270000-0.5*Sales)-(270,0000-0.5*sales)*0.28)*6.14)-240,000

    Now NPV=0 ; Hence C46=0; Sales can be had from C46

    Is the above approach correct ? What changes are required for Larger facility (D column)? Please make changes with detailed solutions

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    Solution Summary

    Investment functions solved are examined.