Instructions: Use formulas and links to cells when possible in the worksheet provided in order to complete the following analysis of the proposed equipment purchase.

Scenario 1 Use the assumptions given in the case details above to calculate the following. 1. What is the payback period for the equipment acquisition? a. Based on the payback you calculated, should management purchase the equipment? Explain. 2. What is the simple rate of return for the equipment acquisition? 3. Use both the PV discount factor chart provided within the spreadsheet and Excel formulas to calculate net present value of the proposed equipment acquisition. a. Are the results the same with both methods? Explain. b. Based on these results, should the company purchase the equipment? Why or why not? 4. Use both the PV discount factor chart provided within the spreadsheet and Excel formulas to calculate the internal rate of return of the proposed equipment acquisition. a. Based on these results, should the company purchase the equipment? Why or why not? b. Why is the internal rate of return different than the simple rate of return?

Scenario 2 Equipment does not always last as long as planned. Calculate the following assuming that the equipment lasts only nine (9) years instead of ten (10). 5. What is the payback period for the equipment acquisition? 6. What is the simple rate of return for the equipment acquisition? 7. Use both the PV discount factor chart provided within the spreadsheet and Excel formulas to calculate net present value of the proposed equipment acquisition. 8. Use both the PV discount factor chart provided within the spreadsheet and Excel formulas to calculate the internal rate of return of the proposed equipment acquisition. 9. What will be your advice regarding purchasing the equipment given these assumptions? Should Muesli AG buy the equipment or not? Explain.

Scenario 3

There have been rumors that perhaps the cost of raw materials will be increasing in the upcoming years. There have been disruptions to the supply chain in addition to global weather changes. Therefore, it could be that the cost to make a box of muesli will be higher than the 7.18 estimated. Calculate the following assuming that the manufacturing costs will increase to 7.20 per box of muesli and that the equipment will last for ten (10) years. 10. What is the payback period for the equipment acquisition? 11. What is the simple rate of return for the equipment acquisition? 12. Use both the PV discount factor chart provided within the spreadsheet and Excel formulas to calculate net present value of the proposed equipment acquisition. 13. Use both the PV discount factor chart provided within the spreadsheet and Excel formulas to calculate the internal rate of return of the proposed equipment acquisition.

14. What will be your advice regarding purchasing the equipment given these assumptions? Should Muesli AG buy the equipment or not? Explain. 15. Compare the payback period, simple rate of return, NPV and IRR for the three scenarios. How does changing an assumption affect each of these calculated values?

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