1. Estimate the design As Net Operating Cash Flows (NCF) using a given Excel worksheet. Complete the worksheet given along with this assignment. (Click the tab of Design A)

2. Estimate the design Bs Net Operating Cash Flows (NCF) using a given Excel worksheet. Complete the worksheet given along with this assignment. (Click the tab of Design B)

3. Calculate NPV of the two mutually exclusive designs. Which design should be chosen?

Note: Please answer the problems above by completing the worksheet named Applachian_Design A and Applachian_Design B

Same as screen shots:

Calculation of Net cash flows from adopting new project (Design A)

year

0

1

2

3

4

5

Step A: Estimating Initial Cash Outflow

-

Cost of "new" asset

-

Capitalized expenditures(shipping&installation)

+

Net proceeds from sale of "old"asset (current system)

-(+)

Taxes(Tax savings, tax rate=34%)due to sale of "old" asset (current system)

=

Initial Cash Outflow

Step B: Calculating Interim Incremental Net Cash Flows (years 1 to 5)

a) Operating costs from present equipment (excluding taxes and depreciation)

$138,000

b) Operating costs if Design A is invested (excluding taxes and depreciation)

$110,321

D EBIT_other than D Depreciation : a)-b)

$27,679

D Depreciation

D Net Working Capital (NWC)

$0

$0

$0

$0

$0

D Capital Expenditure

$0

$0

$0

$0

$0

Interim Incremental Net Cash Flow

Step C: Calculating Terminal-year Incremental Net Cash Flow

Incremental cash flow from the terminal

year before project windup considerations

+

Final salvage value of the asset (Design A)

-

Tax due to sale or disposal of "new" asset (tax effect of capital gain or loss)

=

Terminal-year Incremental Net Cash Flow

End of Year

0

1

2

3

4

5

Incremental Net cash flows

NPV

MACRS depreciation rate for three-year property class

33.00%

45.00%

15.00%

7.00%

0.00%

Net Increase in tax depreciation chareges

New Design's depreciation basis

x

MACRS depreciation (%)

0.3300

0.4500

0.1500

0.0700

0.0000

=

New Design's periodic depreciation

Current System's depreciation basis

Not Applicable

Not Applicable

Not Applicable

Not Applicable

Not Applicable

x

MACRS depreciation (%)

Not Applicable

Not Applicable

Not Applicable

Not Applicable

Not Applicable

=

Current System's remaining periodic depreciation

Net increase in tax depreciation charges

Be advised that NOT all cells highligted in yellow necessarily need to be filled. Some cell may be filled with zero or "not applicable."

Calculation of Net cash flows from adopting new project (Design B)
	year	0	1	2	3	4	5
Step A: Estimating Initial Cash Outflow
-	Cost of "new" asset
-	Capitalized expenditures(shipping&installation)
+	Net proceeds from sale of "old"asset (Current System)
-(+)	Taxes(Tax savings, tax rate=34%)due to sale of "old" asset (Current System)
=	Initial Cash Outflow
Step B: Calculating Interim Incremental Net Cash Flows (years 1 to 5)
	a) Operating costs from present equipment (excluding taxes and depreciation)		$138,000
	b) Operating costs if Design B is invested (excluding taxes and depreciation)		67073
	D EBIT_other than D Depreciation : a)-b)		$70,927
	D Depreciation
	D Net Working Capital (NWC)		$0	$0	$0	$0	$0
	D Capital Expenditure		$0	$0	$0	$0	$0
	Interim Incremental Net Cash Flow
Step C: Calculating Terminal-year Incremental Net Cash Flow
	Incremental cash flow from the terminal
	year before project windup considerations
+	Final salvage value of the asset (Design B)
-	Tax due to sale or disposal of "new" asset (tax effect of capital gain or loss)
=	Terminal-year Incremental Net Cash Flow
		End of Year
		0	1	2	3	4	5
Incremental Net cash flows
	NPV
MACRS depreciation rate for three-year property class			33.00%	45.00%	15.00%	7.00%	0.00%
Net Increase in tax depreciation chareges
	New Design's depreciation basis
x	MACRS depreciation (%)		0.3300	0.4500	0.1500	0.0700	0.0000
=	New Design's periodic depreciation
	Current System's depreciation basis		$0
x	MACRS depreciation (%)		Not Applicable
=	Current System's remaining periodic depreciation		$0
	Net increase in tax depreciation charges
	Be advised that NOT all cells highligted in yellow necessarily need to be filled. Some cell may be filled with zero or "not applicable."

A ppalachian Mountain Water Company The incredible sales success of Perrier bottled water in the U.S. beverage market prompted Elvin Vernal to look into the possibility of bottling and selling water froma natural spring on his farm near Townsend, Virginia, located adjacent to the Appalachian National Scenic Trail. The beautiful, crystal-clear streams in the mountains are a delight to over 12 million visitors each year and Vernal hoped to capitalize on this opportunity Although the business was not immediately profitable, nevertheless, his product was reasonably well received by some beverage distributors in the south and Midwest, primarily because it was priced substantially below Perrier water. Future sales prospects are encouraging and Vernal expects to be in the bottled water business for some years in the future His most pressing current problem, however, is whether or not a new bottling system should be purchased to replace a somewhat primitive one that was acquired when the business was started. Cliff Cleaver, a sales representative from an equipment company in Cincinnati, Ohio, has presented plans to Vernal that he believes will accommodate product demand for the next five years. Basically, there are two choices-Design A and Design B. Each has the same bottling capacity and the primary difference between them is degree of automation versus hand labor. The more automated installation, Plan B, cost more, of course, but is capable of reducing labor costs during its in-service years; unfortunately, maintenance costs tend to increase rapidly over the equipment's life. A listing of the economic characteristics of each, along with those of the present system, is presented in Table 1 Vemal is finding it difficult to make a decision in the matter. He knows he will be in a 34 percent tax bracket over the next five years and believes he can earn a 12 percent return on alternative investments during this period. He has a slight preference for Design B since, according to his calculations, the cost of the installation is recovered through reduced operating costs in about 15 months with A, it takes about 19 months. Vemal admits the difference is probably trivial and he is not even sure that his approach is valid Looking for help, he then the information to both his public accountant and his bookkeeper and asked each to make a recommendation. Their responses con even more. The public accountant indicated that she employed a net present value (NPv) fused him