LGH Company is considering purchasing a machine to manufacture a new product. Information about the machine follows: Purchase Price Est. Salvage Value # Years Useful Life $550,000 $25,000 5 Method of Depreciation Incremental Revenues (all cash) per year Incremental Expenses (other than deprec.) per yr. Tax Rate Cost of Capital or Desired Rate of Return Straight-line $190,000 $30,000 (All Cash except for depr.) 40% 10% Purchase Price is paid today in period "0" Instructions: Use Excel (formulas & cell references to make the spreadsheet efficient) to do the following: a. Calculate the Projected/Estimated Annual Income After Tax from purchasing the machine -- the incremental after-tax income. There is no income for time period 0. b. Calculate the Annual Incremental Cash Flows resulting from purchasing the machine. (Use calculations & cell references as needed.) Cash flow for today is the amount paid for the machine today. c. Calculate the Payback Period. (Use calculations & cell references as needed.) d. Calculate the Accounting Rate of Return. (round to 2 decimal places) e. Calculate the Net Present Value. (Use Excel's NPV function -- found by clicking on fx) f. Calculate the Internal Rate of Return to two decimal places. (Use Excel's IRR function -- found by clicking on fx) g. Verify your NPV result (not using NPV function): copy the conversion factors from the present value tables in the text (or compute the factors using formulas) to compute the Net Present Value. For this calculation, you may assume even cash flows. c. Payback Period 1 2 d. Accounting Rate of Return Parts a & b: Calculate incremental Income after Tax and Cash Flow for each year of the project life. Remember that this project has a projected salvage value that will affect the final year's projected cash flow. Time Period Year 0 3 4 5 Cash Revenue Operating Expenses Depreciation Expense Income before Taxes Taxes @ 40% a. Estimated Net Income Depreciation Add-Back b. Estimated Cash Flows e. Net Present Value (use Excel fx NPV) f. Internal Rate of Return (use Excel fx IRR) g. Calculate NPV using conversion factors from Table #1 in textbook (page B-10 appendix). Conversion Factor 1 Total NPV Present Value Equivalent $0