ACCT3010 TOPIC 4 PRCATICE QUESTIONS SET 2 WINTER 2022 5. Compute the net present value (NPV) of the proposed investment. (Use the built in function in Excel (NPV). Round your answer to nearest whole dollar.) 6. Compute the internal rate of return (IRR) of the proposed investment using the built-in IRR function in Excel. Round your answer to 2 decimal places 7. Compute the modified internal rate of return (MIRR) of the proposed investment using the built-in MIRR function in Excel. Round 9. What strategic considerations and other factors might bear on this investment decision? How can such considerations be dealt with formally in the planning and decision-making process! Comparison of Capital Budgeting Techniques, Sensitivity Analysis: Strategy Rob Roy Corporation has been using its present facilities at its annual full capacity of 10.000 units for the last three years. Still the company is unable to lep pace with continuing demand for the product that is estimated to be 25.000 units annually. This demand level is expected to continue for least another four years. To expand manufacturing capacity and take advantage of the demand, Rob Roy must acquire equipment costing $1.000.000. The equipment will double the current production quantity. This equipment has a useful life of 10 years and can be sold for $200.000 at the end of year 4 or $30,000 at the end of year 10. Analysis of current operating data provides the following information: Per Unit $200 Sales price Variable costs: Manufacturing 597 Marketing 10 S107 Fixed costs Manufacturing $45 Other 25 70 Pretax operating income 177 $ 23 The fixed costs include depreciation expense of the current equipment. The new equipment will not change variable costs, but the firm will incur additional fixed manufacturing costs (excluding depreciation on the new machine) of $250,000 annually. The firm needs to spend an additional $200,000 in fixed marketing costs per year for additional sales. Rob Roy is in the 35% tax bracket. Management has set a minimum rate of return of 14% after-tax for all capital investments. Assume, for simplicity, that MACRS depreciation rules do not apply. a Required 1. Assume that the equipment will be depreciated over a four year period using the straight-line method. What effects will the new equipment have on aftertax operating income in each of the four years? 2. What effect will the new equipment have on after-tax cash inflows in each of the four years! 3. Compute the proposed investment's payback period (in years) under the assumption that after-tax cash inflows occur evenly throughout the year. Round your answer to 2 decimal places (eg. 14.816% -14,82%)
