Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed
image text in transcribed
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 initilly, but if 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. 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%6. s Caiculate 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 saljage value, and the working capital (Wc) requirement, she asks you to use the following probabilates and values in the scensrio analyis: Calculate the projects expected hipy, its standard deviation, and is coefficient of vartation, Do net round intermediate calculations. Round the inanetary values to the nearest dollar and a coefficient of variation to two decimal places. Negative values, if any, should be indicated by a minus sien. Calculate the NPV if cost savings value deviate by plus 20%. 5 Calculate the NPV if cost savings value deviate by minus 20%. 5 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: Caiculate the project's expected NPV, its standard deviation, and its coefficient of variation. Do not round intermediate caiculations. Round the monetary values to the nearest doliar 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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Contemporary Financial Management

Authors: R. Charles Moyer, James R. McGuigan, William J. Kretlow

11th Edition

0324653506, 978-0324653502

More Books

Students also viewed these Finance questions

Question

Explain the three persistence protocols that can be used with CSMA.

Answered: 1 week ago

Question

=+Define social listening and social monitoring

Answered: 1 week ago