$ % 8-9% Insert Delete Format Conditional Format as Cell Formatting Table Styles Styles Clear Number Ceils Editing M N O R o A company that manufactures recreational pe&tal boats has approached Mike Cichanowski to ask if he would be interested in using Current Donions' rotomold expertise and equipment to produce some of the pedal boat components. Mike is intrigued by the idea and thinks it would be an interesting way of complementing the present product line. One of Mike's hesitations about the proposal is that the pedal boats are a different shape than the kayaks that Current Designs produces. As a result, the company would need to buy an additional rotomold oven in order to produce the pedal boat components. This project clearly involves risks, and Mike wants to make sure that the returns justify the risks in this case, since this is a new venture. Mike thinks that a 15% discount rate is appropriate to use to evaluate the project As an intern at Current Designs, Mike has asked you to prepare an initial evaluation of this proposal to aid in your analysis, he has provided the following information and assumptions 1. The new rotomold oven will have a cost of $256.000, a salvage value of so, and an 8- year useful life. Straight-line depreciation will be used. 2 The projected revenuen, conts, and results for each of the 8 years of this project areas follows Sales 5220.000 Less: Manufacturing costs $140,000 Depreciation 32,000 Shipping and administrative costs 22.000 194.000 Income before income taxes 26.000 income tax expense 10.800 Net income $ 15,200 Required Use shoot Lab Parts 1 and 2. 1. (a) Compute the annual rate of return Compute the payback period (c) Compute the NPV using a discount rate of 5%. Compute the IRR of the proposed investment Should the proposal be accepted? (d) Compute the NPV using Mike's expected discount rate of 159 Should the proponal be accepted using this discount rate? Compute the IRR or the proposed investment. Why is there no difference in the IRR? WHAT IF? 2 Perform what ir analysis to answer each of the following independent scenarios (a) What is the NPV and IRR Ir the required rate or return is 10%? Why does the IRR not change? Did the NPV amount increase or decrease, and why did it chango (b) What is the NPV and IRR Ir the discount rate remains at 1596, but the cost of the investment drops to $208.000 and as a result, depreciation drops, and income taxen increase to $11.2002 The company uses straight-line depreciation Hint You will need to recalculate depreciation expense. What information is provided by the NPV and IRR to help you decide if this investment is acceptable? (b) 2 Sheet1 Sheet2 Sheets lije $ % 8-9% Insert Delete Format Conditional Format as Cell Formatting Table Styles Styles Clear Number Ceils Editing M N O R o A company that manufactures recreational pe&tal boats has approached Mike Cichanowski to ask if he would be interested in using Current Donions' rotomold expertise and equipment to produce some of the pedal boat components. Mike is intrigued by the idea and thinks it would be an interesting way of complementing the present product line. One of Mike's hesitations about the proposal is that the pedal boats are a different shape than the kayaks that Current Designs produces. As a result, the company would need to buy an additional rotomold oven in order to produce the pedal boat components. This project clearly involves risks, and Mike wants to make sure that the returns justify the risks in this case, since this is a new venture. Mike thinks that a 15% discount rate is appropriate to use to evaluate the project As an intern at Current Designs, Mike has asked you to prepare an initial evaluation of this proposal to aid in your analysis, he has provided the following information and assumptions 1. The new rotomold oven will have a cost of $256.000, a salvage value of so, and an 8- year useful life. Straight-line depreciation will be used. 2 The projected revenuen, conts, and results for each of the 8 years of this project areas follows Sales 5220.000 Less: Manufacturing costs $140,000 Depreciation 32,000 Shipping and administrative costs 22.000 194.000 Income before income taxes 26.000 income tax expense 10.800 Net income $ 15,200 Required Use shoot Lab Parts 1 and 2. 1. (a) Compute the annual rate of return Compute the payback period (c) Compute the NPV using a discount rate of 5%. Compute the IRR of the proposed investment Should the proposal be accepted? (d) Compute the NPV using Mike's expected discount rate of 159 Should the proponal be accepted using this discount rate? Compute the IRR or the proposed investment. Why is there no difference in the IRR? WHAT IF? 2 Perform what ir analysis to answer each of the following independent scenarios (a) What is the NPV and IRR Ir the required rate or return is 10%? Why does the IRR not change? Did the NPV amount increase or decrease, and why did it chango (b) What is the NPV and IRR Ir the discount rate remains at 1596, but the cost of the investment drops to $208.000 and as a result, depreciation drops, and income taxen increase to $11.2002 The company uses straight-line depreciation Hint You will need to recalculate depreciation expense. What information is provided by the NPV and IRR to help you decide if this investment is acceptable? (b) 2 Sheet1 Sheet2 Sheets lije