New-Project Analysis Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
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 25%, and a 10% 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: S TRA MIRR 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 answers 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% 1 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 Scenario Probability Cost Savings Salvage Value WC Worst case Base case 0.35 535 $80,000 $28,000 $40,000 110,000 Best case 0.30 132,000 33,000 38,000 35,000 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: 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 25%, and a 10% 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: S TRA MIRR 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 answers 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% 1 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 Scenario Probability Cost Savings Salvage Value WC Worst case Base case 0.35 535 $80,000 $28,000 $40,000 110,000 Best case 0.30 132,000 33,000 38,000 35,000 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:
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Refer to the Journal of Applied Psychology (June 2002) completely randomized design study to compare the mean commercial recall scores of viewers of three TV programs, presented in Exercise 10.33 (p....
-
What inputs are required to assert the alarm output in Figure 3-37(b)? Figure 3-37 b A . C D 2 (b) N ALARM
-
Minicase 2 Nike and Reebok} Nike and Reebok compete head-to-head in the sport shoe and sport apparel business. For both companies, inventory is a significant portion of total assets. The following...
-
The general ledger of Pack-N-Ship at June 30, 2012, the end of the companys fiscal year, includes the following account balances before adjusting entries. The additional data needed to develop the...
-
Display the Solver Parameters dialog box again. Add a constraint that requires Percent growth in cell B16 to be less than or equal to 10% Click Solve, and then save this scenario as 10% Growth...
-
A college coach is evaluating two running backs by looking at the number of yards gained for each attempt in the last game. The following table shows the number of yards gained in each of the last 6...
-
discuss hw First CARIBBEAN international Bank use both qualitive and quantitative measures to assess its performance. with plenty explanation
-
What frameworks can organizations use to ensure ethical decision-making, and how do organizational values and ethics influence stakeholder relationships and corporate reputation ?
-
1. How does diversity affect the success of an employer or school? 2. A coworker is paid more than you for doing the same job. How does this affect your motivation? 3. A coworker is late for work...
-
How do employee resource groups (ERGs), affinity networks, and other grassroots initiatives contribute to the promotion of diversity and inclusion within organizations, and how can leaders...
-
How to explain the sumptoms and signalment of a dog having a trachea collapse
-
Please answer these questions for Tesla Inc. Describe industry barriers to entry that are apt to shield the firm from competitor growth or new entry. Focus on firms with unique capabilities apt to...
-
Annuities and time You want to quit your day job and become a day trader. However, knowing the risk of doing so, you want to have a nest egg first. Your goal is to have $100,000 in an investment...
-
Consider the three-dimensional return series jointly. Build a multivariate time-varying volatility model for the data, using the Cholesky decomposition. Discuss the implications of the model and...
-
Annuities and rates Your grandpa is a great guy and is willing to give you $50,000 today to pay off some student loan. But he wants to be repaid $200 each month for the next thirty years. What APR is...
Study smarter with the SolutionInn App