here is the project which I'm already done the part A and I need help with question 2 on with answer on word docs

ACCT505 Part B Check Figure Total annual cash flows (after tax amount): $58,351 Capital Budgeting Decision Clark Paints: The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the paint cans instead of purchasing them. The equipment needed would cost $200,000, with a disposal value of $40,000, and would be able to produce 5,500,000 cans over the life of the machinery. The production department estimates that approximately 1,100,000 cans would be needed for each of the next 5 years. The company would hire three new employees. These three individuals would be full-time employees working 2,000 hours per year and earning $12.00 per hour. They would also receive the same benefits as other production employees, 18% of wages in addition to $2,500 of health benefits. It is estimated that the raw materials will cost 25 per can and that other variable costs would be 5 per can. Because there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted. It is expected that cans would cost 45 each if purchased from the current supplier. The company's minimum rate of return (hurdle rate) has been determined to be 12% for all new projects, and the current tax rate of 35% is anticipated to remain unchanged. The pricing for a gallon of paint as well as number of units sold will not be affected by this decision. The unit-ofproduction depreciation method would be used if the new equipment is purchased. Required: 1. Based on the above information and using Excel, calculate the following items for this proposed equipment purchase. o Annual cash flows over the expected life of the equipment o Payback period o Annual rate of return o Net present value o Internal rate of return 2. Would you recommend the acceptance of this proposal? Why or why not. Prepare a short double-spaced Word paper elaborating and supporting your answer. ACCT505 Part B Capital Budgeting Problem CHAUTHUY TRAN Clark Paints Data: Cost of new equipment Expected life of equipment in years Disposal value in 5 years Life productionnumber of cans Annual production or purchase needs Initial training costs Number of workers needed Annual hours to be worked per employee Earnings per hour for employees Annual health benefits per employee Other annual benefits per employee% of wages Cost of raw materials per can Other variable production costs per can Costs to purchase cansper can Required rate of return Tax rate $200,000 5 $40,000 5,500,000 1,100,000 0 3 2,000 $12.00 $2,500 18% $0.25 $0.05 $0.45 12% 35% Make Cost to produce Annual cost of direct material: Need of 1.1 million cans per year Annual cost of direct labor for new employees: Wages Health benefits Other benefits Total wages and benefits Other variable production costs Total annual production costs Annual cost to purchase cans Purchase $275,000 72,000 7,500 12,960 92,460 55,000 $422,460 $495,000 Part 1 Cash flows over the life of the project Item Annual cash savings Tax savings due to depreciation Before Tax Amount Tax Effect $72,540 32,000 After Tax Amount 0.65 $47,151 0.35 $11,200 Total annual cash flow $58,351 Part 2 Payback period Payback period = investment required / annual net cash inflow = $200,000 / $58,35 Part 3 Annual rate of return Accounting income as result of decreased costs Annual cash savings Less depreciation Before tax income Tax at 35% rate After tax income 3.4275333756 or 3.43 years $72,540 32,000 40,540 14,189 $26,351 $26,351 / $200,000 = 13.18% Part 4 Net present value Item Cost of machine Cost of training Annual cash savings Tax savings due to depreciation Disposal value Net Present Value Before Tax Amount Year 0 0 1-5 1-5 5 Tax % -$200,000 0 $72,540 $32,000 $40,000 After Tax 12% PV Present Amount Factor Value -$200,000 1.000 -$200,000 0 1.000 0 0.65 47,151 3.605 169,979 0.35 11,200 3.605 40,376 40,000 0.567 22,680 $33,035 Part 5 Internal rate of return Excel function method to calculate IRR This function requires that you have only one cash flow per period (Period 0 through Period 5 for our example) This means that no annuity figures can be used. The chart for our example can be revised as follows. Item Cost of machine and training Year 1 inflow Year 2 inflow Year 3 inflow Year 4 inflow Year 5 inflow Year After Tax Amount 0 $ (200,000) 1 $ 58,351 2 $ 58,351 3 $ 58,351 4 $ 58,351 5 $ 98,351 The IRR function will require the range of cash flows beginning with the initial cash outflow for the investment and progressing through each year of the project. You also have to include an initial "guess" for the possible IRR. The formula is: =IRR(values,guess) IRR Function IRR(f84..f89,.30) 18.0%