Question
BUBBA has ONLY provided you with the following information: Full price of machine is $140,000. The increase in net working capital is $2,000. BUBBA has
BUBBA has ONLY provided you with the following information:
Full price of machine is $140,000.
The increase in net working capital is $2,000.
BUBBA has a 25% marginal tax rate.
The machine falls into the MACRS 3-year class (33%, 45%, 15%, and 7% depreciation rates).
BUBBA will use the machine for 4 years and then plans to sell it for $25,000 at the end of year 4.
The machine is expected to provide incremental revenue of $60,000 per year and incremental cost of $15,000 per year for the life of the machine. There will be no transportation costs related to the machine.
BUBBA has a WACC of 10%.
Create a MS-Excel spreadsheet to calculate the NPV similar to the Cash Flow Estimation spreadsheet. This sheet should not include cash flows in year 5 since the asset is sold at the end of year 4. The spreadsheet will be used by the BUBBA managers to assist them in making the investment decision. The spreadsheet should be set up to allow for a sensitivity analysis to be conducted. The cells to input the full price, increase in net working capital, incremental revenues and costs, sale price in year 4 and WACC should be easily identified (e.g. yellow) and allow the BUBBA managers to change their values. Your sheet should be set up so that if the assumptions change your sheet updates appropriately. Your sheet should be set up so that if the assumptions change your sheet updates appropriately.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started