MAD Inc.s Board was so impressed with Sharon Meadows analysis that they expanded her financial analysis department. Sharon has hired your team to help her evaluate a potential new project for the company.

The company just finished a project in a manufacturing plant that could be modified and used for this new project manufacturing materials for microprocessor chips used in automobiles and computers. MAD Inc. sees this as a 4-year project to help fill the national and world-wide microprocessor chip shortage.

Initial costs (t=0) include plant modification and equipment costs totaling $3,500,000. The company estimates that they will have more than sufficient operating income to write off (expense) the cost of the project which allows the project to qualify for immediate 100% Bonus Depreciation. Also, the project would require and initial increase in net operating working capital of $400,000.

Last year, the company spent $250,000 repairing some damage caused by the previous project in the manufacturing plant that would be used by this proposed project. Some members of MADs accounting and treasury department suggest that this repair cost which has already been paid and expensed for tax purposes should be charged against this microprocessor materials project. Their rationale is that the company would have to spend this $250,000 to make the plant suitable for the proposed new project.

In terms of annual operating cash flows, the company forecasts the following sales price & variable cost per unit and unit sales.

Year	Sales price per unit	Variable cost per unit	Unit Sales
1	$40	$20	90,000
2	$39	$20	80,000
3	$38	$21	70,000
4	$38	$22	50,000

The company forecasts fixed costs of $200,000 annually and a tax rate of 25%.

At the end of the 4-year life of the project, the equipment has an expected salvage value of $300,000 and the initial increase in net operating working capital would be liquidated (recovered). Susan and her staff has estimated a 13% WACC for this project.

How would you calculate the following in Excel:

3) \begin{tabular}{|l|l|l|} \hline Initial Cash Flow (t=0) & \multicolumn{1}{|c|}{T=} \\ \hline Equipment Cost & (3,500,000) \\ \hline Tax Savings & xxxxx: should be a positive number \\ \hline Inc. in NWC & 25%(400,000) \\ \hline Initial Cash Flow & xxxxx: shoule be =SUM(D10:D12) \\ \hline \end{tabular} 4) \begin{tabular}{|l|l|l|l|l|l|} \hline Sales Revenue & $3,600,000 & $3,120,000 & $2,660,000 & $1,900,000 \\ \hline Oper Costs & xxxxx: should be : & xxxxx & xxxxx & xxxxx \\ \hline Fixed Costs & (200,000) & (200,000) & (200,0 \end{tabular} 5) Terminal Cash Flow at end of year 5 \begin{tabular}{|l|c|} \hline Salvage Value & 300,000 \\ \hline Tax on Salvage Value & xxxxx: should be a negative value \\ \hline Recovery of NWC & 400,000 \\ \hline TCF5 = & xxxxx: should be = SUM(C34:C36) \\ \hline \end{tabular} 6) WACC 13.00\% Organize the Full Time Series of Cash Flow from 3), 4) and 5) \begin{tabular}{|l|l|l|l|l|l|l|} \hline Year0 & & 1 & & 2 & 3 & 4 \\ \hlinexxxxx & xxxxx & & xxxxx & xxxxx & xxxxx \\ \hline \end{tabular} \begin{tabular}{|l|l|} \hline NPV & xxxxx \\ \hline IRR & xxxxx \\ \hline \end{tabular} xxxxx: Decision: Reject the project if negative NPV or IRR