1 Understand how to use EXCEL Spreadsheet (a) Develop proforma Income Statement Using Excel Spreadsheet (b) Compute Net Project Cashflows, NPV, and IRR (c) Develop problem solving and critical thinking skills and make long term investment decisions 1) Life Period of the Equipment 4 years 8) Sales for first year (1) $200,000 2) New equipment cost $(200,000) 9) Sales increase per year 5 3) Equipment ship install cost $(35,000) 10) Operating cost (60 of Sales) $(120,000) 4) Related start up cost $(5,000) (as a percent of sales in Year 1) 60 5) Inventory increase $25,000 11) Depreciation (Straight Line) YR $(60,000) 6) Accounts Payable increase $5,000 12) Marginal Corporate Tax Rate (T) 21 7) Equip salvage value before tax $15,000 13) Cost of Capital (Discount Rate) 10 ESTIMATING Initial Outlay (Cash Flow, CFo, T 0) CF0 CF1 CF2 CF3 CF4 Year 0 1 2 3 4 Investments 1) Equipment cost 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1 2 3) 4) Net Working Capital Total Initial Outlay Operations Revenue Operating Cost Depreciation EBIT Taxes Net Income Add back Depreciation Total Operating Cash Flow XXXXX XXXXX XXXXX XXXXX Terminal 1) Change in net WC $ $ $ $20,000 2) Salvage value (after tax) Salvage Value Before Tax (1 T) XXXXX Total XXXXX Project Net Cash Flows $ $ $ $ $ NPV IRR Payback Q 1 Would you accept the project based on NPV, IRR Would you accept the project based on Payback rule if project cut off is 3 years Q 2 Impact of 2017 Tax Cut Act on Net Income, Cash Flows and Capital Budgeting (Investment ) Decisions (a) Estimate NPV, IRR and Payback Period of the project if equipment is fully depreciated in first year and tax rate equals to 21 Would you accept or reject the project ( b) As a CFO of the firm, which of the above two scenario (a) or (b) would you choose Why Q 3 How would you explain to your CEO what NPV means Q 4 What are advantages and disadvantages of using only Payback method Q 5 What are advantages and disadvantages of using NPV versus IRR Q 6 Explain the difference between independent projects and mutually exclusive projects When you are confronted with Mutually Exclusive Projects and have coflicts with NPV and IRR results, which criterion would you use (NPV or IRR) and why SHOW WORK PLEASE

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1  Understand how to use EXCEL Spreadsheet (a) Develop proforma Income Statement Using Excel Spreadsheet (b) Compute Net Project Cashflows, NPV, and IRR (c) Develop problem solving and critical thinking skills and make long term investment decisions 1) Life Period of the Equipment   4 years 8) Sales for first year (1) $200,000 2) New equipment cost $(200,000) 9) Sales increase per year 5  3) Equipment ship   install cost $(35,000) 10) Operating cost (60  of Sales) $(120,000) 4) Related start up cost $(5,000) (as a percent of sales in Year 1)  60  5) Inventory increase $25,000 11) Depreciation (Straight Line) YR $(60,000) 6) Accounts Payable increase $5,000 12) Marginal Corporate Tax Rate (T) 21  7) Equip  salvage value before tax $15,000 13) Cost of Capital (Discount Rate) 10  ESTIMATING Initial Outlay (Cash Flow, CFo, T  0) CF0 CF1 CF2 CF3 CF4 Year 0 1 2 3 4 Investments  1) Equipment cost 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1 2 3) 4) Net Working Capital Total Initial Outlay Operations  Revenue Operating Cost Depreciation EBIT Taxes Net Income Add back Depreciation Total Operating Cash Flow XXXXX XXXXX XXXXX XXXXX Terminal  1) Change in net WC $  $  $  $20,000 2) Salvage value (after tax) Salvage Value Before Tax (1 T) XXXXX Total XXXXX Project Net Cash Flows $  $  $  $  $ NPV   IRR   Payback  Q 1 Would you accept the project based on NPV, IRR  Would you accept the project based on Payback rule if project cut off is 3 years  Q 2 Impact of 2017 Tax Cut Act on Net Income, Cash Flows and Capital Budgeting (Investment ) Decisions (a) Estimate NPV, IRR and Payback Period of the project if equipment is fully depreciated in first year and tax rate equals to 21   Would you accept or reject the project  ( b) As a CFO of the firm, which of the above two scenario (a) or (b) would you choose  Why  Q 3 How would you explain to your CEO what NPV means  Q 4 What are advantages and disadvantages of using only Payback method  Q 5 What are advantages and disadvantages of using NPV versus IRR  Q 6 Explain the difference between independent projects and mutually exclusive projects  When you are confronted with Mutually Exclusive Projects and have coflicts with NPV and IRR results, which criterion would you use (NPV or IRR) and why       SHOW WORK PLEASE

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1. Understand how to use EXCEL Spreadsheet (a) Develop proforma Income Statement Using Excel Spreadsheet (b) Compute Net Project Cashflows, NPV, and IRR (c) Develop

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1. Understand how to use EXCEL Spreadsheet
(a) Develop proforma Income Statement Using Excel Spreadsheet
(b) Compute Net Project Cashflows, NPV, and IRR
(c) Develop problem-solving and critical thinking skills
	and make long-term investment decisions

1) Life Period of the Equipment = 4 years			8) Sales for first year (1)			$200,000
2) New equipment cost		$(200,000)	9) Sales increase per year			5%
3) Equipment ship & install cost		$(35,000)	10) Operating cost (60% of Sales)			$(120,000)
4) Related start up cost		$(5,000)	(as a percent of sales in Year 1)			-60%
5) Inventory increase		$25,000	11) Depreciation (Straight Line)/YR			$(60,000)
6) Accounts Payable increase		$5,000	12) Marginal Corporate Tax Rate (T)			21%
7) Equip. salvage value before tax		$15,000	13) Cost of Capital (Discount Rate)			10%



ESTIMATING Initial Outlay (Cash Flow, CFo, T= 0)

		CF0	CF1	CF2	CF3	CF4
Year		0	1	2	3	4
Investments:
1) Equipment cost
2) Shipping and Install cost
3) Start up expenses
Total Basis Cost (1+2+3)
4) Net Working Capital
Total Initial Outlay

Operations:
Revenue
Operating Cost
Depreciation
EBIT
Taxes
Net Income

Add back Depreciation

Total Operating Cash Flow			XXXXX	XXXXX	XXXXX	XXXXX

Terminal:
1) Change in net WC			$-	$-	$-	$20,000
2) Salvage value (after tax)		Salvage Value Before Tax (1-T)				XXXXX
Total						XXXXX

Project Net Cash Flows		$-	$-	$-	$-	$

NPV =		IRR =			Payback=

Q#1	Would you accept the project based on NPV, IRR?
	Would you accept the project based on Payback rule if project cut-off
	is 3 years?
Q#2 Impact of 2017 Tax Cut Act on Net Income, Cash Flows and
	Capital Budgeting (Investment ) Decisions
(a)	Estimate NPV, IRR and Payback Period of the project if equipment is fully
	depreciated in first year and tax rate equals to 21%. Would you
	accept or reject the project?
( b)	As a CFO of the firm, which of the above two scenario (a) or (b)
	would you choose? Why?
Q#3 How would you explain to your CEO what NPV means?
Q#4 What are advantages and disadvantages of using only Payback method?
Q#5 What are advantages and disadvantages of using NPV versus IRR?
Q#6 Explain the difference between independent projects and mutually exclusive projects.
	When you are confronted with Mutually Exclusive Projects and have coflicts
	with NPV and IRR results, which criterion would you use (NPV or IRR) and why? *****SHOW WORK PLEASE !!!!