New-Project Analysis Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax manufacturing costs by $110,000 annually. Madison would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $33,000 at the end of its 5-year operating life. The applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. Working capital would increase by $35,000 initially, but it would be recovered at the end of the project's 5-year life. Madison's marginal tax rate is 40%, and a 13% cost of capital is appropriate for the project. a. Calculate the project's NPV, IRR, MIRR, and payback. Do not round intermediate calculations. Round the monetary value to the nearest dollar and percentage values and payback to two decimal places. Negative values, if any, should be indicated by a minus sign. NPV:$ IRR: % MIRR: % The project's payback: years b. Assume management is unsure about the $110,000 cost savings - this figure could deviate by as much as plus or minus 20%. Do not round intermediate calculations. Round your answer to the nearest dollar. Negative values, if any, should be indicated by a minus sign. Calculate the NPV if cost savings value deviate by plus 20%. $ Calculate the NPV if cost savings value deviate by minus 20%. $ 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 working capital (WC) requirement. She asks you to use the following probabilities and values in the scenario analysis: $ 88,000 Scenario Probability Cost Savings Salvage Value WC Worst case 0.25 $28,000 $40,000 $ Base case 0.45 110,000 33,000 35,000 Best case 0.30 132,000 38,000 30,000 Calculate the project's expected NPV, its standard deviation, and its coefficient of variation. Do not round intermediate calculations. Round the monetary values to the nearest dollar and a coefficient of variation to two decimal places. Negative values, if any, should be indicated by a minus sign. The project's expected NPV: $ $ Standard deviation: $ Coefficient of variation: Replacement Analysis The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $80,000. It had an expected life of 10 years when it was bought and its remaining depreciation is $8,000 per year for each year of its remaining life. As older flange-lippers are robust and useful machines, this one can be sold for $20,000 at the end of its useful life. A new high-efficiency digital-controlled flange-lipper can be purchased for $150,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $25,000 per year, although it will not affect sales. At the end of its useful life, the high-efficiency machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life, so the applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. The old machine can be sold today for $30,000. The firm's tax rate is 35%, and the appropriate cost of capital is 14%. a. If the new flange-lipper is purchased, what is the amount of the initial cash flow at Year 0? Round your answer to the nearest dollar. Cash outflow, if any, should be indicated by a minus sign. $ b. What are the incremental net cash flows that will occur at the end of Years 1 through 5? Do not round intermediate calculations. Round your answers to the nearest dollar. Cash outflows, if any, should be indicated by a minus sign. CF1 $ CF2 $ CF3 $ CF4 $ CF5 $ C. What is the NPV of this project? Do not round intermediate calculations. Round your answer to the nearest whole dollar. Negative value, if any, should be indicated by a minus sign. $
