** Note: please answer as soon as possible and clearly. I will give you a thumbs up

.

Case for Section 1 THE VILLARD ELECTRIC COMPANY The financial manager of the Villard Electric Company, Fred Taylor, has presented his estimates of cash flows resulting from the possible investment in a new computer system, the Webnet. Mr. Taylor's estimates of net cash flows immediately and over the following four years are as follows: First Second Third Fourth Item Initial year year year year Purchase of computer system -$200,000 Sale of computer system $40,000 Tax on sale of computer system 12.442 Acquisition and disposition cash flows $200,000 SO SO $0 $52,442 Change in expenses $50,000 $50,000 $50,000 $50,000 Change in depreciation 40,000 64.000 38.400 23,040 Change in taxable income $10,000 $14,000 $11,600 $26,960 Less: change in tax 3.600 -5,040 4.176 9,706 Change in income after tax $6,400 -$8,960 $7,424 $17,254 Change in depreciation 40.000 64.000 38,400 23,040 Change in operating cash flows $46,400 $55,040 $45.824 $40,294 Change in net cash flows -$200,000 $46,400 $55,040 $45.824 $92,736 Mr. Taylor has based his estimates on the following assumptions: The cost of the system (including installation) is $200,000. . The system will be depreciated as a 5-year asset under the MACRS, but it will be sold at the end of the fourth year for $50,000. Villard's expenses will decline by $50,000 in each of the four years. The company's tax rate will be 36%. Working capital will not be affected. When he made his presentation to Villard's board of direc- tors, Mr. Taylor was asked to perform additional analyses to con- sider the following uncertainties: 47 48 The Villard Electric Company The cost of the system may be as much as 20% higher or as low as 20% lower. The change in expenses may be 30% higher or 20% lower than anticipated The tax rate may be lowered to 30%. Requirements a. Reestimate the project's cash flows to consider each of the possi- ble variations in the assumptions, altering only one assumption each time. Using a spreadsheet program will help with the calculations. b. Discuss the impact that each of the changes in assumptions has on the project's cash flows