1. Use the information given in Session 6 Data.pdf for this question.

a) Before investing in your new company, a venture capitalist has asked for a five-year
projected income statement showing unit sales, revenue, total variable cost, marketing
expense, fixed cost, and profit before tax. Build a spreadsheet for the venture capitalist.

b) What is the net present value of the stream of profits / losses for the first five years,
assuming a discount rate of 11% p.a.?
2. Use the solution to the previous question as data for this question.

a) How many units do you need to sell in the first year to break even in the first year?

b) How many units do you need to sell in the first year to break even in the second year?

c) Construct three scenarios:

Most Likely: First Year Unit Sales = 1600, First Year Unit Price = $1800
Worst Case : First Year Unit Sales = 1300, First Year Unit Price = $1700
Best Case : First Year Unit Sales = 1700, First Year Unit Price = $1850

d) Display the Worst Case scenario. How will the NPV change if (other parameters
remaining same) the Yearly Sales Growth rate were to be below 100%? Vary the Yearly
Sales Growth rate between 50% and 100% at 5 percentage point intervals and calculate
the NPVs corresponding to each Yearly Sales Growth rate for each of the three scenarios.

e) What would happen if the Yearly Price Fall were to be above or below 15% and
Yearly Sales Growth rate were to vary between 50% and 100%? Vary the Yearly Sales
Growth rate between 50% and 100% at 5 percentage point intervals and the Yearly Price
Fall rate between 10% and 20% at 1 percentage point intervals simultaneously, and
calculate the NPVs corresponding to each pair of Yearly Sales Growth rate and Yearly
Price Fall rate for each of the three scenarios.