Case 2 Damon Corporation, a sports equipment manufacturer, has a machine currently in use that was originally purchased 3 years ago for $120,000. The firm depreciates the machine under MACRS using a 5-year recovery period. Once removal and cleanup costs are taken into consideration, the expected net selling price for the present machine will be $70,000. Damon can buy a new machine for a net price of $160,000 (including installation costs of $15,000). The proposed machine will be depreciated under MACRS using a 5-year recovery period. If the firm acquires the new machine, its working capital needs will change: Accounts receivable will increase $15,000, inventory will increase $19,000, and accounts payable will increase $16,000 Earnings before depreciation, interest, and taxes (EBDIT) for the present machine are expected to be $95,000 for each of the successive 5 years. For the proposed machine, the expected EDBIT for each of the next 5 years are $105,000, $110,000, $120,000, $120,000, and $120,000, respectively. The corporate tax rate (T) for the firm is 40%. Damon expects to be able to liquidate the proposed machine at the end of its 5-year usable life for $24,000 (after paying removal and cleanup costs). The present machine is expected to net $8,000 upon liquidation at the end of the same period. Damon expects to recover its net working capital investment upon termination of the project. The firm has a 40 percent corporate tax rate and a 10 percent required return. Create a spreadsheet to answer the following:

a. Create a spreadsheet to calculate the initial investment

b. Create a spreadsheet to prepare a depreciation schedule for both the proposed and the present machine. Both machine are depreciated under MACRS using a 5-year recovery period. Remember that the present machine has only 3 years of depreciation remaining.

c. Create a spreadsheet to calculate the operating cash flows for Damon Corporation for both the proposed and the present machine.

d. Create a spreadsheet to calculate the terminal cash flow associated with the project. e. Determine the payback period of the project?

f. Determine the profitability index of the project?

g. Determine the IRR of the project?

h. Determine the NPV of the project?

i. Provide the recommendation based on your analysis on those criteria