Please read the .pdf file and finish the excel assignmentSheet1 Chapter 6 Goodweek Tires, Inc. NAME: Input area: Research and development$ 10,000,000Sunk Cost - excluded from Cash Flow Test marketing cost$ 5,000,000Sunk Cost - excluded from Cash Flow Initial equipment cost$ 160,000,000 Equipment salvage value$ 65,000,000Comoute Each Year Depreciation Year 1 depreciation14.30%$ 22,880,000.00 Year 2 depreciation24.50%$ 39,200,000.00 Year 3 depreciation17.50%$ 28,000,000.00 Year 4 depreciation12.50%$ 20,000,000.00 OEM market: Price$ 41 Variable cost$ 29 Automobile production6,200,000 Growth rate2.50% Market share11.00% Replacement market: Price$ 62 Variable cost$ 29 Market size32,000,000 Growth rate2.00% Market share8.00% Price increase above inflation1% VC increase above inflation1% Marketing and general costs$ 43,000,000 Tax rate 40.00% Inflation rate3.25% Required return13.40% Initial NWC$ 9,000,000 NWC percentage of sales15% Output area: Nominal price increase4.28%Computed for you Nominal VC increase4.28%Computed for you Year 0Year 1Year 2Year 3Year 4 OEM: Automobiles sold 6,200,0006,355,0006,513,8756,676,722Computed for you Tires for automobiles sold24,800,00025,420,00026,055,50026,706,887Computed for you SuperTread tires sold2,728,0002,796,2002,866,1052,937,758Computed for you Price per Tire$ 41.00$ 42.76$ 44.59$ 46.50Computed for you Replacement market: Total tires sold in market SuperTread tires sold Price per Tire Revenue: OEM market Replacement market Total Variable costs: VC per Tire Total VC in OEM market Tot VC in Replacement market Total Revenue Variable costs Marketing and general costs(43,000,000)(44,397,500)(45,840,419)(47,330,232)Computed for you Depreciation EBT Tax Net income OCF New working capital:Values inputed for youValues inputed for you Beginning 0$ 9,000,000 Ending9,000,000-- NWC cash flow$ (9,000,000)$ 9,000,000$ -$ -$ -Computed for you Book value of equipment$ 160,000,000 Aftertax salvage value: Market value Taxes Total Year 0Year 1Year 2Year 3Year 4 Operating cash flow Capital spending NWC Cash flow Total cash flows NPV IRR Profitability index Sheet2 Sheet3 GOODWEEK TIRES, INC. After extensive research and development, Goodweek Tires, Inc., has recently developed a new tire, the SuperTread, and must decide whether to make the investment necessary to produce and market it. The tire would be ideal for drivers doing a large amount of wet weather and off-road driving in addition to normal freeway usage. The research and development costs so far have totaled about $10 million. The SuperTread would be put on the market beginning this year, and Goodweek expects it to stay on the market for a total of four years. Test marketing costing $5 million has shown that there is a significant market for a SuperTread—type tire. As a financial analyst at Goodweek Tires, you have been asked by your CFO, Adam Smith, to eval- uate the SuperTread project and provide a recommendation on whether to go ahead with the invest- ment. Except for the initial investment that will occur immediately, assume all cash flows will occur at year-end. Goodweek must initially invest $120 million in production equipment to make the SuperTread. This equipment can be sold for $51 million at the end of four years. Goodweek intends to sell the SuperTread to two distinct markets: 1. The Original Equipment Manufacturer (OEM)Market The OEM market consists primal-- Fly of the large automobile companies (e.g., General Motors) who buy tires for new cars. In the OEM market, the SuperTread is expected to sell for $36 per tire. The variable cost to produce each tire is $18. 2. The Replacement Market The replacement market consists of all tires purchased after the automobile has left the factory. This market allows higher margins and Goodweek expects to sell the SuperTread for $59 per tire there. Variable costs are the same as in the OEM market. iloodweek fires intends to ruse prices at I percent above Me inflation rate; variable costs will also Increase 1 percent above the inflation rate. In addition, the Super [read project will incur $25 million in marketing and general administration costs the first year. This cost is expected to increase at the inflation rate in the subsequent years. Goodweek's corporate tax rate is 40 percent. Annual inflation is expected to remain constant at 3.25 percent. The company uses a 15.9 percent discount rate to evaluate new product decisions. Automotive industry analysts expect automobile manufacturers to produce 2 million new cars this year and production to grow at 2.5 percent per year thereafter. Each new car needs four tires (the spare tires are undersized and are in a different category). Goodweek Tires expects the SuperTread to capture 11 percent of the OEM market. Industry analysts estimate that the replacement tire market size will be 14 million tires this year and that it will grow at 2 percent annually. Goodweek expects the SuperTread to capture an 8 percent market share. The appropriate depreciation schedule for the equipment is the seven-year MACRS depreciation schedule. The immediate initial working capital requirement is $11 million. Thereafter, the net working capital requirements will be 15 percent of sales. What are the NPV, payback period, discounted pay- back period, AAR. IRE, and PI on this project? 269