Answer questions 1 a, b,c and 2. Fill in the sheet using excel.

1) Life Period of the Equipment = 4 years 2) New equipment cost $ 3) Equipment ship & install cost $ 4) Related start up cost $ 5) Inventory increase $ 6) Accounts Payable increase 7) Equip. salvage value before tax $ 8) Sales for first year (1) (200,000) 9) Sales increase per year (35,000) 10) Operating cost (60% of Sales) (5,000) (as a percent of sales in Year 1) 25,000 11) Depreciation (Full depreciation) 5,000 12) Marginal Corporate Tax Rate (T) 15,000 13) Cost of Capital (Discount Rate) 200,000 5% (120,000) -60% (240,000) 21% 10% $ Year Operations: I/S Revenue Operating Cost Depreciation EBIT Taxes Net Income $ 200,000 $ (120,000) $ (240.000) $ (160,000) $ (33.600) $ (126,400) Add back Depreciation $ 240,000 Total Operating Cash Flow $ 113.600 $ - $ . $ . ESTIMATING Initial Outlay (Cash Flow. CF. T= 0) Year Investments: 1) Equipment cost 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1+2+3) 4) Net Working Capital Increase in CA - Increase in CL Total Initial Outlay $ (200,000) $ (35,000) $ (5,000) $ (240,000) $ 120,000) $(260,000 20,000 Terminal: 1) Change in net WC 2) Salvage value (after tax) Total Salvage Value Before Tax (1-T) XXXXX Project Net Cash Flows $ (260,000) $ 113,600 $ NPV = IRR = Payback= Q#1 Impact of 2017 Tax Cut Act on Net Income, Cash Flows and Capital Budgeting (Investment ) Decisions Estimate NPV, IRR and Payback period of the project if equipment is fully depreciated in the first year and tax rate equals (a) (b) Would you accept the project based on NPV and IRR? (c) Would you accept the project based on Payback rule if the project cut-off is 3 years? Q#2 As a CFO of the firm, which of the Scenarios (1) or (2) would you choose? Why