Answered step by step
Verified Expert Solution
Link Copied!

Question

00
1 Approved Answer

How to use excel to do this queation? A company is considering the purchase of a new machine (which costs $10 million) and operating it

image text in transcribed

How to use excel to do this queation?

A company is considering the purchase of a new machine (which costs $10 million) and operating it for 10 years (and selling the machine at the end of year 10). It is estimated that the new machine will generate $3.5 million in sales revenue in the FIRST year of operation. The company predicts that the sales revenue will grow at 8% per year. The annual cost of goods sold with respect to this sale is $2.75 million for the first year. The general administration costs of the company for this sale would be $0.8 million for the first year. These costs will grow at the long-term inflation rate (1.e. 2%) per year. The machine will depreciate 7 a. linearly in 25 years. The company forecasts that in year 10, the market value of the machine is $6.5 million if maintained well. As a result of this investment, the company is eligible for 2 years of tax exemptions (in years 1 and 2). After year 3, the company should pay taxes at the rate of 25%. a What is the internal rate of return (IRR) of this project (purchase)? Should the company invest in this project if its required rate of return is 4%? Your excel file should have at least two columns: Year (from 0 to 10) and the Cash Flow of the project at each year. 6. Plot the NPV of the project with discount rates ranging between 1% and 20% under 3 scenarios (all in the same graph): (1) Realistic, where the Sales Growth rate is 8%, (11) Pessimistic, where the Sales Growth rate is 4%, (111) Optimistic, where the Sales growth rate is 12%. Label the x-axis "Discount Rate" and title the plot "NPV" and add legends on the plot

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions