Lilly Natural Snacks is contemplating an expansion. The finance manager is looking at buying a second machine that would cost $60,000 and last for 7 years, with no disposal value at the end of that time. Lilly expects the increase in cash revenues from the expansion at $35,000 per year, with additional annual cash costs of $20,000. Lilly's cost of capital is 16%, and the company pays no taxes because of its location in a special economic zone. Requirement 3. The finance manager thinks that costs will vary with revenues, and if the revenues are 10% higher, the costs will be 7% higher. If the revenues are 10% lower the costs will be 10% lower. Recalculate the NPV and IRR at the high and low revenue points with this new cost information Begin by calcutting the net present value of the investment at the high point for revenue. (Round intermediary calculations to the nearest whole dollar. Use factors to three decimal places, XXXX, and enter the net prenent value of the investment rounded to the nearest whole dollar. Use a minus sign or parentheses for a negative not present value.) The net present value (NPV) at the high point for revenue is Now calculato the internal rate of return for the investment at the high point for revenue (Une straight-line interpolation as necessary. In calculations, une factors to three decimal places, X.XXX. Do not round Intermediary calculations. Round the internal rate of return to the nearest hundredth percent, XXX%) The Internal rate of retum (IRR) at the high point for revenue is Now calculate the net present value of the investment at the low point for revenue (Round intermediary calculations to the nearest whole dollar Use factor to three decimal places, X.XXX, and enter the net present value of the investment rounded to the nearest whole dollar. Use a minus sign or parentheses for a negative not present value.) The not present value (NPV) at the low point for revenuo is Calculate the internal rate of return for the investment at the low point for revenue. (Use straight-line interpolation as necessary. In calculations, use factors to three decimal places, XXXX. Do not round intermediary calculations. Round the internal rate of return to the nearest hundredth percent, X.XX%) The internal rate of retum (IRR) at the low point for revenue is Requirement 4. The finance manager has decided that the company should earn 2% more than the cost of capital on any project. Recalculate the original NPV in requirement 1 using the new discount rate and evaluate the investment opportunity (Round intermediary calculations to the nearest whole dollar. Uso factors to three decimal places, X.XXX, and enter the net present value of the investment rounded to the nearest whole dollar. Use a minus sign on parenthoses for a negative not present value.) The net present value is % Requirement 5. Discuss how the changes in assumptions have affected the decision to expand recommendations for the As can be observed from the answers to requirements 1. through 4. above, the different assumptions lead to decision to expand The net present value (NPV) at the high point for revenue is IC Now calculate the internal rate of return for the investment at the high point for revenue. (Use straight-line interpolation as necessary. In calculations, use factors to three decimal places, X.XXX. Do not round intermediary calculations. Round the internal rate of return to the nearest hundredth percent. X.XX%) The internal rate of return (IRR) at the high point for revenue is % Now calculate the not present value of the investment at the low point for revenue (Round intermediary calculations to the nearest whole dollar. Une factors to three decimal places, XXXX and enter the net present value of the investment rounded to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value) The net present value (NPV) at the low point for revenue is Calculate the internal rate of return for the investment at the low point for revenue. (Use straight-line interpolation as necessary. In calculations, use factors to three decimal places, X.XXX. Do not round intermediary calculations, Round the internal rate of return to the nearest hundredth percent, X.XX%) The internal rate of return (IRR) at the low point for revenue is Requirement 4. The finance manager has decided that the company should earn 2% more than the cost of connu min Decalculate the original NPV in requirement 1 using the new discount rate and evaluate the investment opportunity. (Round intermedia Brest whole dollar. Use factors to three decimal places, X.XXX, and enter the net present value of the investment rounded to the near inus sign or parentheses for a negative net present value.) very different The net present value is similar Requirement 5. Discuss how the changes in assumptions have affected the decision to expand. recommendations for the As can be observed from the answers to requirements 1. through 4. above, the different assumptions lead to decision to expand