A capital project and budgeting decision is being considered that would involve an expansion, along with a replacement of some old equipment. The project is expected to have a $6-$year life for the firm.

The new project will require new equipment costing $$2000$k $($$$2$ million$),$ which will be depreciated straight$-$line to a book value of $$200$k at the end of $6$ years.

Due to new energy efficient technology, replacing the old equipment with the new more efficient equipment will generate an immediate tax credit of $5\%$ of the equipment$$s cost$.$ Although tax laws may vary, for simplicity assume this tax credit does not reduce the $$2000$k cost of the new equipment for the straight$-$line depreciation calculation.

This project will replace some existing equipment which currently has a book value $($BV$)$ of $$200$k and an estimated market salvage value of $$375$k$.$ Assume that this old equipment is sold in a separate transaction at time zero and that this sale also does not reduce the $$2000$k cost of the new equipment for the straight$-$line depreciation calculation.

The expansion will require an additional investment in NWC of $$200$k at time zero, which will be recovered at the end of the $6-$year life.

Sales are expected to increase by $$1000$k the first year and grow by $15\%$ in years $2$ and $3,$ then by $5\%$ annually during the remaining $6-$year life.

Cost of goods sold is forecasted to be $45\%$ of the increased sales, and other selling and general administrative expenses are forecasted to be $10\%$ of the increased sales.

It is forecasted that the new equipment will have a salvage value of $$300$k at the end of the project$$s $6-$year life $($and the $$200$k book value from the straight$-$line depreciation$).$

The firm$$s weighted average cost of capital $($WACC$)$ for projects of this risk level is $8\%.$ The firm$$s marginal tax rate is T $=40\%.$

Use the Excel template to complete the cash flow model and the capital budgeting analysis.

Your Excel analysis should clearly indicate the cash flow model analysis timeline and should provide the project$$s:

$$ NPV$,$

$$ IRR,

$$ PBP$,$

$$ PI$,$

$$ Scenario Analysis $=>$ completion of the scenario analysis grids which provide NPV of the entire cash flow model under the different scenarios indicated in the grids, and

$$ the project$$s NPV Profile graph $($with proper labels$).$