Ca pital Budgeting Decisions Student 1: Student 2: Student 3: 3 Setup for Questions 4 (Note Numbers in parenthesis mean negative amounts) 5 1) Life Period of the Equipment 6 2) New equipment cost 7 3) Equipment ship & install cost 8 4) Related start up cost 9 5) Sales for the first year (year 1) 10 6) Sales increase per year 4 years 7) Operating cost (60% of Sales) in year 1 120,000) 60% (60,000) 21% 10% $(200,000(as a percent of sales) (35,000) 8) Depreciation per year (5,000) 9) Marginal Corporate Tax Rate 200,000 10) Cost of Capital (WACC) 5% 12 Q1. Please fill the cells below (blue boxes) using the information above 13 14 15 Investments: 16 1) Equipment cost 17 2) Shipping and Install cost 18 3) Start up expenses CFO CF1 CF2 CF3 CF4 Year> $ (200,000) $ (35,000) $(5,000 240,000 Total Initial Investment (1+2+3 20 21 Operations: 22 Revenue 23 Operating Cost 24 Depreciation 25 EBIT 26 Taxes $ 200,000$210,000 $ (120,000$ (126,000 27 Net Income (NI) 28 29Total Operating Cash Flow 30 (Add back Depreciation to NI) 31 32 Project Net Cash Flows $ (240,000) $ 34 Q2. Calculate NPV and IRR in the cells using Excel formulas 3 NPV- 36 37 Q3. Will you accept or reject the project based on NPV? Explain your reason 38 39 0 Q4. Will you accept or reject the project based on IRR? Explain your reason 41 IRR