Methods (Explanation of the Graphical method of obtaining the Rate of Return Values and Method for solving External Rate of Return. Also show the steps you need to take to calculate Present, Annual and Future Worth of the Project) : 25 points Results and Discussion (Answers to questions 1, 2, 5 and 6), 30 points Siemens Company has an opportunity to supply wind power systems to Midwestern Energy, an energy company in the Midwest of the United States. Midwestern Energy will pay $5 million upfront i.e. when the contract is signed and $1 million one year later. Siemens had obtained loan from Bank of America investment bank) prior to the initial payment from Midwestern Energy, and invest $ 3 million from it at the beginning of the project. Subsequently, Siemens spend $ 1.5 million, S 7.5 million, $ 2.5 million, 2 million, and S 1.5 million as running cost for the first second third, fourth and fifth year respectively. In the third year Midwestern Energy will deposit 7.5 million into Siemens business account. Midwestern Energy will take delivery of the power system during Year 4, and agrees to pay $ 2.25 million at the end of that year and the S3 million balance at the end of year 5. The outcome of the rate of return on this investment as compare with the minimum attractive rate of return (MARR) will determine if Siemens will continue to sustain their current staff strength or they will cede to the option of downsizing after the completion of the 5 year deal. Siemens management request her project management team to conduct an economic analysis on the proposed venture (project) so that they can be better informed on policy formulation in readiness for any exigency that may result from the project. These exigencies include but not limited to staff downsizing, staff retainment, salary freezing, salary cut or closing down some of their plants since they are multinational company. The project management team is planning approach the task as follows: 1. Generate a table depicting the cash flow estimates for the Project 2. Draw the cash flow diagram for the cash flow estimates 3. Determine the number of rates of return values this project is likely to have. 4. Obtain the values for the rate of return using Microsoft Excel (Spreadsheet). These values should be obtain by plotting the Present worth against the range of rate of return values (0% to 100%, step increase of 5 %) 5. Evaluate the Internal Rate of Return (IRR) for the zero net present worth using Microsoft Excel Spreadsheet 6. Siemens management have set a MARR of 15% for any of their project; will you advised Siemens to embark on this project knowing the net positive cash flow received from Midwestern Energy is reinvested at 14%. The loan Siemens obtained from Bank of America for the production of the wind power system is borrowed at a rate of 7%. Evaluate the total present, annual and future worth of the project and use these values besides the rate of return value as part of your metric to determine the viability of the project
