Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

( 1 ) This project costs $ 1 , 8 0 0 , 0 0 0 to purchase fixed assets, and $ 5 0 ,

(1) This project costs $1,800,000 to purchase fixed assets, and $50,000 for shipping & installation fee.
(2) The life of this project is 5 years. The salvage value of fixed assets is 15% of the gross fixed assets (including shipping & installation fee).
(3) The working capital needed is $35,000 in 2023, and it is expected to increase 3.5% each year thereafter.
(4) This project can produce 180,000 units in 2023, and production is expected to grow 5% each year. The current unit price is $7, and the cost of each unit is $4.5.
(5) The inflation rate is 3.85% each year. The firm will adjust both the unit price and the variable cost of each unit based on the inflation rate.
(6) The firm uses the 5-year straight-line depreciation policy for its fixed assets, and it is in the 21% tax bracket.
(7) The cost of capital for the firm is 8.5%.
1. A) Calculate the initial outlay, annual after-tax cash flows, and terminal cash flow for this project.
2. B) Calculate the payback period, discounted payback period, NPV, PI, IRR, and MIRR.
3. C) Perform sensitivity analysis of the effects of cost of capital on the projects NPV.
4. D) Scenario analysis of the combined effects of the following three variables on payback, discounted payback, NPV, IRR, and MIRR.
Scenario Production Unit Price Unit Cost
Best Case 250,000 $9 $4
Expected Case 180,000 $7 $4.5
Worst Case 120,000 $6 $5
Please post answers with Excel formulas in below format
012345
Unit Production
Unit Price
Unit cost
Sales
Variable costs
Depreciation Expense
EBIT
Tax (21%)
NOPAT= EBIT - Tax
Depreciation
Fixed Assets
Shipping & Installation fee
Gross Fixed Assets Expenditure
Net Working Capital
Changes in Net Working Capital
Salvage Value
Annual after-tax Cash Flows
Payback Period
PV of Expected FCF
Discounted Payback
NPV
IRR
MIRR
Years of straight-line depreciation
Salvage Value (% of purchasing costs)
Working Capital Growth rate
Corporate Tax Rate
Cost of Capital
Production Growth Rate
Inflation rate

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Technical Analysis Of Stock Trends

Authors: Robert D. Edwards, John Magee

6th Edition

1599180219, 978-0139043437

More Books

Students also viewed these Finance questions

Question

1. What causes musculoskeletal pain?

Answered: 1 week ago