Apple Inc. (ticker: AAPL) is considering installing a new and highly sophisticated computer system in one of its manufacturing facilities, which would cost $71 million. Delivery and installation would add another $1.2 million to the initial cost. The new computer system has a 5-year class life under MACRS. Because of the half-year convention, it will take six years for Apple to fully depreciate the cost of the system (MACRS percentages: 20, 32, 19, 12, 11 and 6 percent), and at the end of year 6 the salvage value of the system is estimated to be $5 million.

-If the new system is purchased, revenue from greater sales is expected to increase over the present level by $105 million in each of the first three years, by $97 million in year 4, and by $88 million in years 5 and 6. (These improvements are incremental, not cumulative.) -The increase in operating costs is projected at $68 million for each of the six years. -Apples federal-plus-state income tax rate is 40 percent. -The projects weighted average cost of capital (WACC) is 12.0 percent. -It is expected that installation of the new system would cause the following changes in working capital accounts (1) an increase in receivables of $25 million because of expanded business, (2) an increase in inventories of $6 million and (3) an increase in accounts payable and accruals combined equal to $5 million. Using Excel, do the following:

a. State the basic assumptions of the problem in an assumption block. This means that you should display in the upper left-hand corner of the spreadsheets all the relevant quantitative information given above, whether it actually changes in the problem or not. Enter the numbers in thousands. For example, enter the $25 million increase in receivables as $25,000 in the spreadsheet.

b. Calculate (1) the projects net cash outflow at time zero (t = 0) if Apple goes ahead with this expansion; (2) construct a table along the following lines to calculate the project net cash flows for years 1 through 6 (in thousands); and (3) calculate the NPV of the expansion project. (Note: The NPV function in Excel assumes the first cash flow is for period 1 not time 0. Thus, the initial time 0 cash outflow needs to be outside the NPV function, but still part of the calculation. Confirm the correct NPV by checking it with your calculator.)

c. Because computer hardware and software prices are notoriously difficult to estimate beyond a couple of yearslet alone resale valuesthe salvage value of the new system is somewhat iffy. However, the Forecasting Department guesses that the salvage value will not drop below $1.4 million. Using this worst-case scenario as far as salvage is concerned (i.e., a salvage value of $1.4 million), what is the new NPV? Other assumptions are as in Parts (a) and (b). Answer by duplicating the assumption block and NPV analysis to create a new spreadsheet. Save as AAPLC.

d.While analyzing the project, you suddenly realize that the current tax law actually allows Apple to depreciate the computer system over four years instead of six. Assume percentages of 33, 45, 15 and 7 percent and assume that the system will, in fact, be used for six years as originally planned. All other assumptions are as in Part (c). Calculate a new NPV on a new spreadsheet, and save as AAPLD.

e.Your boss would also like to know just how sensitive the NPV of the project is to operating costs. What is the highest annual operating cost increase associated with the project that would result in a positive NPV? (HINT: Find the answer using the Goal Seek function in Excel. Solve for the operating cost that sets NPV to $1). All other assumptions are as in Part d. Recalculate a new NPV on a new spreadsheet, and save as AAPLE. (Hint: If your NPV cell is in units of thousands, an NPV of $1 would be shown as $0.001.)

f. Change annual operating costs back to $68 million. Find the IRR of the project using Goal Seek. (HINT: Solve for the cost of capital that sets the NPV to zero). All other assumptions are as in Part (e), with operating costs back to $68 million. Save as AAPLF the spreadsheet showing your IRR solution.

Please show the cell addresses/ how recieved answers.