Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Just need B and C !! Holmes Manufacturing is considering a new machine that costs $230,000 and would reduce pretax manufacturing costs by $90,000 annually.

Just need B and C !!image text in transcribed

Holmes Manufacturing is considering a new machine that costs $230,000 and would reduce pretax manufacturing costs by $90,000 annually. Holmes would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $26,000 at the end of its 5-year operating life. The applicable depreciation rates are 33%, 45%, 15%, and 7%. Net operating working capital would increase by $24,000 initially, but it would be recovered at the end of the project's 5-year life. Holmes's marginal tax rate is 40%, and a 12% WACC is appropriate for the project. a. Calculate the project's NPV. Round your answer to the nearest cent. $ Calculate the project's IRR. Round your answer to two decimal places. % Calculate the project's MIRR. Round your answer to two decimal places. % Calculate the project's payback. Round your answer to two decimal places. years b. Assume management is unsure about the $90,000 cost savings-this figure could deviate by as much as plus or minus 20%. What would the NPV be under each of these situations? Round your answers to the nearest cent. Negative amount should be indicated by a minus sign. 20% savings increase. $ 20% savings decrease. $ c. Suppose the CFO wants you to do a scenario analysis with different values for the cost savings, the machine's salvage value, and the net operating working capital (NOWC) requirement. She asks you to use the following probabilities and values in the scenario analysis: Scenario Probability Cost Savings Salvage Value NOWC Worst case 0.35 $72,000 $21,000 $29,000 Base case 0.35 90,000 26,000 24,000 Best case 0.30 108,000 31,000 19,000 Calculate the project's expected NPV, its standard deviation, and its coefficient of variation. Round your answers to two decimal places. E(NPV) = $ ONPV = $ CV =

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

Routledge Handbook Of Social And Sustainable Finance

Authors: Othmar M. Lehner

1st Edition

1138343773, 978-1138343771

More Books

Students also viewed these Finance questions

Question

Discuss the differences between sales and market orientations? LO.1

Answered: 1 week ago