Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I need this solved in excel. Using XNPV for mid year cash flows. The Cold and Sweet (C&S) company manufactures ice-cam bars. The company is

I need this solved in excel. Using XNPV for mid year cash flows.
image text in transcribed

The "Cold and Sweet" (C&S) company manufactures ice-cam bars. The company is considering the purchase of a new machine. The details are as follows (25 points): a. b. C. d. e. The cost of the machine is $900,000 The machine will be depreciated $120,000 per year. The company intends to use the machine for only 5 years, and will sell the machine at $100,000 (atthe end of year 5) The company expects revenue of $520,000 per year. The company expects costs of goods sold to be $220,000 per year. Tax rate is 30% Cost of capital is 14% Assume cash flows occur at the end of the year. What is the NPV of the project [5 points] Repeat the analysis now assuming that cash flows occur mid-year [5 point]. The Cold and Sweet Company is considering another machine that offers an NPV of $15,000, but only has a 3-year life. However, you can repurchase this machine as many times as you'd like. Compute the EAC of this investment and the original project (based on end of year cash flows). Which project would you recommend investing in, why? [5 points]. Suppose the annual (i.e., one year) inflation rates for years 1 to 5 are: 4%, 3%, -1%, 6%, 2%. Based on the inflation rates, compute the Nominal and Real IRR [5 points]. Suppose that you were able to depreciate the machine more quickly (e.g., $150,000 per year). Would this make the project more or less profitable? Intuitively explain why. Note, no analysis is needed for this question, a purely conceptual answer is fine. [5 points].

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

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

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

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

Get Started

Recommended Textbook for

Quantitative Finance Its Development Mathematical Foundations And Current Scope

Authors: T. Wake Epps

1st Edition

0470431997, 9780470431993

More Books

Students also viewed these Finance questions