Depreciation rate for recovery period 10 year 3 year 20 year 3.75DW 44.45 14.81 7:41 20.00% 32.00 10.20 11.52 11.52 14.29% 24.40 17.40 10 DON 18.00 14.00 5.713 5.78 5285 6.55 5.00 6.50 3.28 501 4.461 4.461 5.00 5.91 4,481 Depreciation Calculation Depreciation Basis 57 330 S 92.047 $ incesin Perback Period FINCA 3310 - SPRING 2020 Learning Obiectives 1. Understand how to use EXCEL Spreadsheet (a) Develop proforma Income Statement Using Excel Spreadsheet (b) Compute Net Project Cashflows, NPV, and IRR (c) Develop problem-solving and critical thinking skills and make long-term investment decisions 11 Lite Period of the Equipment 4 years Sales for first year (1) 2 New equipment cost $200,000 9) Sales increase per year 3) Equipament ship & Install cost (535,000 10) Operating co0 % of Sales) 4 Related start up cost ($5,000) (as a percent of sales in Year 1) $25,000 11) Depreciation Accounts Payable Increase $5.000 12) Marginal Corporate Tax Rate() D) Equip, salvage value before tax $15,000 13) Cost of Capital (Discount Rate) 120,000) Use Byr MACRIS Filling data in the cells colored only. Do not in the cell Do not delete any row or column ESTIMATING Ini Outlay Cash Flow, CF, TO (200 000 (35.000) Investments: 1) Equipment cost 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1+2+3) 4) Net Working Capital Total Initial Outlay (240,000) 120.000 Betons 200 000 $ 120.00015 210,000 $ (128000) $ 220.500 $ (132 300) $ 231,525 (138,915) Operating cost Depreciation EBIT 80.000 $ $ 84,000 29.400 38.2005 30570 S 57,330 $ 32414 60,197 Add back Depreciation Total Operating Cash Flow Terminales: 1) Change in net WC 2) Salvage value afer tax) Project Net Cash Flows NPV = Profitabindex PLEASE RESPOND TO THESE QUESTIONS ON ANOTHER TAB Would you accept the project based on NPV, IRR? Would you accept the project based on Payback rule of project cut-off mpact of 2017 Tax Cut Act on Net Income Cash Flows and Capital Budgeting investment ) Decisions Estimate NPV and Payback period of the project tax rate equal to 21% Would you accept or reject the project (b) As a CFO of the form, which of the above we scenarios () (2) would you choose? Why? 3 How would you explain to your CEO what NPV means? 4 What are advantages and disadvantages of using only Payback method Or What are advantages and disadvantages of using NPV versus IR? ul Chart Sheet T Te Shape Media Comment corse Capital Budgeting Decisions CASE STUDY EINC 3310 - SPRING 2020 Leaming Objectives 1. Understand how to use EXCEL Spreadsheet (a) Develop proforma Income Statement Using Excel Spreadsheet (b) Compute Net Project Cashflows, NPV, and IRR (c) Develop problem-solving and critical thinking skills and make long-term investment decisions 200.000 $ (120,000) 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 61 Accounts Payable increase 7) Equip. salvage value before tax ($ 200,000) (535.000 ($5.000) 8) Sales for first year (1) 9) Sales Increase per year 10) Operating cost (60% of Sales) (as a percent of sales in Year 1) 11) Depreciation 12) Marginal Corporate Tax Rate() 13) Cost of Capital (Discount Rate) Use 3 MACRIS 35% $5.000 $15,000 Filing data in the cells colored only. Do not write in any other cell Do not delete any row or column ESTIMATING Initial Outlay Cash Flow, CFO, T-0) CF1 CF2CFCFA Investments: 1) Equipment cost 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1+2+3) 4) Net Working Capital Total Initial Outlay (200,000) (35,000) 15.000 (240,000) 120.000) 1260.000) IS 210,000 $ (126.000) $ 220,500 $ (132,300) $ 231,525 (138.915) Operations: Revenue Operating Cost Depreciation EBIT Taxes Net Income 200,000 $ (120.000) $ - S 80.000 $ 28.000 $ 52.000 $ 92.610 84,000 $ 29.400 S 54,600 $ 88,200 $ 30.870 S 57,330 $ 60,197 Add back Depreciation Total Operating Cash Flow 52.000 $ 54.600 S 57.330 $ 60,197 MacBook Pro W Total Operating Cash Flow $ 52.000 $ 54.600 S 57.330 $ 60,197 Terminal values: 1) Change in net WC 2) Salvage value (after tax) Total $ $ 11.850 31.850 Project Net Cash Flows $ (260,000) $ 52,000 $ 54,600 $ 57,330 $ 92,047 NPV = $61.661.43) IRR -0.5668% Payback= 0.00 Profitability Index = M 0.76 Discounted Payback = 0.00 PLEASE RESPOND TO THESE QUESTIONS ON ANOTHER TAB Would you accept the project based on NPV, IRR? Would you accept the project based on Payback rule if project cut-off is 3 years? Q#2 Impact of 2017 Tax Cut Act on Net Income, Cash Flows and Capital Budgeting (Investment ) Decisions (a) Estimate NPV, IRR and Payback period of the project if tax rate equals to 21%. Would you accept or reject the project? (b) As a CFO of the firm, which of the above two scenarios (1) or (2) would you choose? Why? Q#3 How would you explain to your CEO what NPV means? Q#4 What are advantages and disadvantages of using only Payback method? ONS What are advantages and disadvantages of using NPV versus IRR? Q#6 Explain the difference between Independent projects and mutually exclusive projects. When you are confronted with Mutually Exclusive Projects and have coflicts with NPV and IRR results, which criterion would you use (NPV or IRR) and why? Then right click on the tab Year 3-year 20-year 33.33% 44.45 14.81 7.41 MACRS TABLE Depreciation rate for recovery period 5-year 7-year 10-year 15-year 20.00% 14.29% 10.00% 5.00% 32.00 24.49 18.00 9.50 19.20 17.49 14.40 8.55 11.52 12.49 11.52 7.70 11.52 8.93 9.22 6.93 3.750% 7.219 6.677 6.177 5.713 5.76 8.92 8.93 4.46 7.37 6.55 6.55 6.56 6.55 3.28 6.23 5.90 5.90 5.90 5.285 4.888 4.522 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.482 4.461 2 231 Depreciation Calculation 240,000 Depreciation Basis: # of years: Macrs 3 years A'B Depreciation Year Salvage value*(1 - marginal tax rate) Payback Period Year Count - Projected CF Cummulative CF $ (260,000) $ (260,000) $ 52,000 $ (208,000) $ 54,600 $ (153,400) $ 57,330 $ 196,070) $ 92,047 $ (4,024) Payback period years Discounted Payback Period Year Count 0 1 Projected CF Discount factor $ (260,000). 1. $ 52,000 $ 54,600 $ 57,330 92,047 Payback period Discounted CF ($260,000) $0 SO Cummulative CF $ (260,000) $ (260,000) $ (260,000) $ (260,000) $ (260,000) $ $0 years Depreciation rate for recovery period 10 year 3 year 20 year 3.75DW 44.45 14.81 7:41 20.00% 32.00 10.20 11.52 11.52 14.29% 24.40 17.40 10 DON 18.00 14.00 5.713 5.78 5285 6.55 5.00 6.50 3.28 501 4.461 4.461 5.00 5.91 4,481 Depreciation Calculation Depreciation Basis 57 330 S 92.047 $ incesin Perback Period FINCA 3310 - SPRING 2020 Learning Obiectives 1. Understand how to use EXCEL Spreadsheet (a) Develop proforma Income Statement Using Excel Spreadsheet (b) Compute Net Project Cashflows, NPV, and IRR (c) Develop problem-solving and critical thinking skills and make long-term investment decisions 11 Lite Period of the Equipment 4 years Sales for first year (1) 2 New equipment cost $200,000 9) Sales increase per year 3) Equipament ship & Install cost (535,000 10) Operating co0 % of Sales) 4 Related start up cost ($5,000) (as a percent of sales in Year 1) $25,000 11) Depreciation Accounts Payable Increase $5.000 12) Marginal Corporate Tax Rate() D) Equip, salvage value before tax $15,000 13) Cost of Capital (Discount Rate) 120,000) Use Byr MACRIS Filling data in the cells colored only. Do not in the cell Do not delete any row or column ESTIMATING Ini Outlay Cash Flow, CF, TO (200 000 (35.000) Investments: 1) Equipment cost 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1+2+3) 4) Net Working Capital Total Initial Outlay (240,000) 120.000 Betons 200 000 $ 120.00015 210,000 $ (128000) $ 220.500 $ (132 300) $ 231,525 (138,915) Operating cost Depreciation EBIT 80.000 $ $ 84,000 29.400 38.2005 30570 S 57,330 $ 32414 60,197 Add back Depreciation Total Operating Cash Flow Terminales: 1) Change in net WC 2) Salvage value afer tax) Project Net Cash Flows NPV = Profitabindex PLEASE RESPOND TO THESE QUESTIONS ON ANOTHER TAB Would you accept the project based on NPV, IRR? Would you accept the project based on Payback rule of project cut-off mpact of 2017 Tax Cut Act on Net Income Cash Flows and Capital Budgeting investment ) Decisions Estimate NPV and Payback period of the project tax rate equal to 21% Would you accept or reject the project (b) As a CFO of the form, which of the above we scenarios () (2) would you choose? Why? 3 How would you explain to your CEO what NPV means? 4 What are advantages and disadvantages of using only Payback method Or What are advantages and disadvantages of using NPV versus IR? ul Chart Sheet T Te Shape Media Comment corse Capital Budgeting Decisions CASE STUDY EINC 3310 - SPRING 2020 Leaming Objectives 1. Understand how to use EXCEL Spreadsheet (a) Develop proforma Income Statement Using Excel Spreadsheet (b) Compute Net Project Cashflows, NPV, and IRR (c) Develop problem-solving and critical thinking skills and make long-term investment decisions 200.000 $ (120,000) 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 61 Accounts Payable increase 7) Equip. salvage value before tax ($ 200,000) (535.000 ($5.000) 8) Sales for first year (1) 9) Sales Increase per year 10) Operating cost (60% of Sales) (as a percent of sales in Year 1) 11) Depreciation 12) Marginal Corporate Tax Rate() 13) Cost of Capital (Discount Rate) Use 3 MACRIS 35% $5.000 $15,000 Filing data in the cells colored only. Do not write in any other cell Do not delete any row or column ESTIMATING Initial Outlay Cash Flow, CFO, T-0) CF1 CF2CFCFA Investments: 1) Equipment cost 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1+2+3) 4) Net Working Capital Total Initial Outlay (200,000) (35,000) 15.000 (240,000) 120.000) 1260.000) IS 210,000 $ (126.000) $ 220,500 $ (132,300) $ 231,525 (138.915) Operations: Revenue Operating Cost Depreciation EBIT Taxes Net Income 200,000 $ (120.000) $ - S 80.000 $ 28.000 $ 52.000 $ 92.610 84,000 $ 29.400 S 54,600 $ 88,200 $ 30.870 S 57,330 $ 60,197 Add back Depreciation Total Operating Cash Flow 52.000 $ 54.600 S 57.330 $ 60,197 MacBook Pro W Total Operating Cash Flow $ 52.000 $ 54.600 S 57.330 $ 60,197 Terminal values: 1) Change in net WC 2) Salvage value (after tax) Total $ $ 11.850 31.850 Project Net Cash Flows $ (260,000) $ 52,000 $ 54,600 $ 57,330 $ 92,047 NPV = $61.661.43) IRR -0.5668% Payback= 0.00 Profitability Index = M 0.76 Discounted Payback = 0.00 PLEASE RESPOND TO THESE QUESTIONS ON ANOTHER TAB Would you accept the project based on NPV, IRR? Would you accept the project based on Payback rule if project cut-off is 3 years? Q#2 Impact of 2017 Tax Cut Act on Net Income, Cash Flows and Capital Budgeting (Investment ) Decisions (a) Estimate NPV, IRR and Payback period of the project if tax rate equals to 21%. Would you accept or reject the project? (b) As a CFO of the firm, which of the above two scenarios (1) or (2) would you choose? Why? Q#3 How would you explain to your CEO what NPV means? Q#4 What are advantages and disadvantages of using only Payback method? ONS What are advantages and disadvantages of using NPV versus IRR? Q#6 Explain the difference between Independent projects and mutually exclusive projects. When you are confronted with Mutually Exclusive Projects and have coflicts with NPV and IRR results, which criterion would you use (NPV or IRR) and why? Then right click on the tab Year 3-year 20-year 33.33% 44.45 14.81 7.41 MACRS TABLE Depreciation rate for recovery period 5-year 7-year 10-year 15-year 20.00% 14.29% 10.00% 5.00% 32.00 24.49 18.00 9.50 19.20 17.49 14.40 8.55 11.52 12.49 11.52 7.70 11.52 8.93 9.22 6.93 3.750% 7.219 6.677 6.177 5.713 5.76 8.92 8.93 4.46 7.37 6.55 6.55 6.56 6.55 3.28 6.23 5.90 5.90 5.90 5.285 4.888 4.522 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.482 4.461 2 231 Depreciation Calculation 240,000 Depreciation Basis: # of years: Macrs 3 years A'B Depreciation Year Salvage value*(1 - marginal tax rate) Payback Period Year Count - Projected CF Cummulative CF $ (260,000) $ (260,000) $ 52,000 $ (208,000) $ 54,600 $ (153,400) $ 57,330 $ 196,070) $ 92,047 $ (4,024) Payback period years Discounted Payback Period Year Count 0 1 Projected CF Discount factor $ (260,000). 1. $ 52,000 $ 54,600 $ 57,330 92,047 Payback period Discounted CF ($260,000) $0 SO Cummulative CF $ (260,000) $ (260,000) $ (260,000) $ (260,000) $ (260,000) $ $0 years