Good evening

I ask for help to complete these two exercises. As soon as possible

You must analyze a potential new product--a caulking compound that Mccory Mateials' R&D people developed for use in the residential construction industry. Mccory's marketing manager thinks they can sell 117,000 tubes per year at a price of $4.25 each for 3 years, after which the product will be obsolete. The required equipment would cost $155,000, plus another $20,000 for shipping and installation. Current assets (receivables and inventories) would increase by $30,000, while current liabilities (accounts payable and accruals) would rise by $20,000. Variable costs would be 60% of sales revenues, fixed costs (exclusive of depreciation) would be $70,000 per year, and fixed assets would be depreciated under MACRS with a 3-year life. (Refer to Appendix 12A for MACRS depreciation rates.) When production ceases after 3 years, the equipment should have a market value of $15,000. Mccory's tax rate is 40%, and it uses a 10% WACC for average-risk projects. a. Find the required Year 0 investment and the project's annual cash flows. Then calculate the project's NPV, IRR, MIRR, and payback. Assume at this point that the project is of average risk. Part 1. Key Input Data Equipment cost plus installation Increase in current assets Increase in current liabilities Unit sales Sales price per unit Variable cost per unit Variable cost per unit (in dollars) Fixed costs $175,0 00 $30,00 0 $20,00 0 117,00 0 $4.25 60% $70,00 0 Market value of equipment after 3 yrs Tax rate WAC C $15,0 00 40% 10% Part 2. Depreciation and Amortization Schedule Year Equipment Deprn Rate Equipment Deprn, Dollars Ending Bk Val: Cost - Accum'd Deprn Years Initial Cost 1 33.0 % 0 Sales revenues Variable costs Fixed operating costs Depreciation (equipment) EBIT (Operating income) Taxes on operating income (40%) 3 15.0 % Equi pmen t Part 3. After-Tax Salvage Value at end of Year 3 Estimated Market Value Book Value Expected Gain or Loss Taxes paid or tax credit After-tax salvage value Part 4. Project Cash Flow Analysis Investment Outlays at Time = 0 Equipment Increase in NOWC Operating Cash Flows over the Project's Life Units sold Sales price 2 45.0 % A cc u m 'd D e p r n 1 2 3 EBIT (1 T) = After-tax operating income Add back depreciation EBIT (1 T) + Depreciation Terminal Cash Flows at Time = 3 Salvage value Tax on salvage value After-tax salvage value Recovery of net operating working capital Project FCFs = EBIT (1 T) + DEP CAPEX NOWC Part 5. Key Output: Evaluation of the Proposed Project Net Present Value (at 10%) IRR MIRR Payback; see calculation below) Data for Payback Years 0 1 2 3 Cumulative CF IF Function to find payback b. Suppose you now learn that R&D costs for the new product were $30,000 and that those costs were incurred and expensed for tax purposes last year. How would this affect your estimate of NPV and other profitability measures? c. If the new project would reduce cash flows from Mccory's other projects and if the new project would be housed in an empty building that Mccory owns and could sell, how would those factors affect the project's NPV? d. Are this project's cash flows likely to be positively or negatively correlated with returns on Mccory's other projects and with the economy, and should this matter in your analysis? Explain. e. Unrelated to the new product, Mccory is analyzing two mutually exclusive machines that will upgrade its manufacturing plant. These machines are considered average-risk projects, so management will evaluate them at the firm's 10% WACC. Machine X has a life of 4 years, while Machine Y has a life of 2 years. The cost of each machine is $60,000; however, Machine X provides after-tax cash flows of $25,000 per year for 4 years and Machine Y provides after-tax cash flows of $42,000 per year for 2 years. The manufacturing plant is very successful, so the machines will be repurchased at the end of each machine's useful life. In other words, the machines are "repeatable" projects. 1. Using the replacement chain approach, what is the NPV of the better machine? WACC: Machine X: 0 1 2 3 4 NPV WACC: Machine Y: 2-yr NPV 2. Using the EAA approach, what is the EAA of the better machine? Machine X: N I/YR PV FV PMT = EAA Machine Y: N I/YR PV FV PMT = EAA Segundo Ejercicio Catamaran Industries' and Phillips Inc.'s stock prices and dividends, along with the Winsel 5000 Index, are shown here for the period 2006-2011. The Winslow 5000 data are adjusted to include dividends. a. Use the data to calculate annual rates of return for Catamara, Phillips, and the Winsel 5000 Index. Then calculate each entity's average return over the 5-year period. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in the index. Also, you cannot calculate the rate of return for 2006 because you do not have 2005 data.) Data as given in the problem are shown below: Catamaran Industries Phillips Inc. Stock Stock Dividen Year Price Dividend Price d $48.75 2011 $17.250 $1.150 0 $3.000 2010 14.750 1.060 52.300 2.900 2009 16.500 1.000 48.750 2.750 2008 10.750 0.950 57.250 2.500 2007 11.375 0.900 60.000 2.250 2006 7.625 0.850 55.750 2.000 We now calculate the rates of return for the two companies and the index for 2007-2011: Caramara n 2011 2010 2009 2008 2007 24.7% -4.2% 62.8% 2.9% 61.0% Phillips -1.1% 13.2% -10.0% -0.4% 11.7% Index 32.8% 1.2% 34.9% 14.8% 19.0% Winsel 5000 Includes Divs. 11,663.9 8 8,785.70 8,679.98 6,434.03 5,602.28 4,705.97 Avg Returns 29.4% 2.7% 20.6% Note: To get the average, you could get the column sum and divide by 5, but you could also use the function wizard, fx. Click the Formulas tab, fx, then statistical, then Average, and then use the mouse to select the proper range. Do this for Catamaran and then copy this cell to put the formula in the other 2 cells. b. Calculate the standard deviations of the returns for Catamaran, Phillips, and the Winsel 5000. (Hint: Use the sample standard deviation formula, Equation 8-2a in this chapter, which corresponds to the STDEV function in Excel.) We will use the function wizard to calculate the standard deviations. Standard deviation of return c. Calculate the coefficients of variation for Catamaran, Phillips, and the Winsel 5000. Coefficient of Variation