Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please answer all sub-questions: A, B, C, D, E, F. In addition, please provide all steps and/or Excel Functions within an Excel document so that

image text in transcribed

Please answer all sub-questions: A, B, C, D, E, F. In addition, please provide all steps and/or Excel Functions within an Excel document so that I can understand how to properly solve the problems.

image text in transcribed
Susie's Sweet Confections Inc. (SSCI) manufactures and distributes assorted chocolates. SSCI is considering the development of a new assortment of liqueur avored trufes. SSCI's CFO has collected the following information regarding the proposed project, which is expected to last 5 years: The project can be operated at the company's Phoenix plant, which is currently vacant. The project will require that the company spend $8 million today [t = 0) to purchase a new machine. For tax purposes the equipment will be depreciated on a straight-line basis over 8 years. Thus, the rm's annual depreciation expense is $3,000,000/8 = $1,000,000. The company plans to use the machine for all 5 years of the project. At t = 5 (which is the project's last year of operation), the equipment is expected to have a before-tax market value of $3,750,000. The project will require an increase in net operating working capital of $350,000 at t = 0. The cost of the working capital will be fully recovered at t = 5 [which is the project's last year of operation). Expected trufe sales are as follows: Year Sales 1 $2,000,000 2 5,750,000 3 6,250,000 4 4,500,000 5 3,600,000 The project's annual operating costs (excluding depreciation) are expected to be 55% of sales. The company's tax rate is 40%. The company is extremely protable; so if any losses are incurred from the truffle project they can be used to partially offset taxes paid on the company's other projects. [That is, assume that if there are any tax credits related to this project they can be used in the year they occur.) The project has a WACC = 9%. Given the data above, answer the following questions: a. b- What are the after-tax, net (or free) cash ows for the proposed project? What is the proposed proj ect's NPV? c- What is the proposed proj ect's IRR? d- What is the proposed proj ect's MIRR'? e. Management is uncertain about the proposed project's operating costs and tax rates. How will the proposed project's NPV vary if operating costs vary between 53% to 58% [in 1% increments) and tax rates vary between 38% to 43% (in 1% increments)? Analyze changes in these variables at the same time. [Set up a 2-variable input Excel data table. You must use Excel's data table feature and include a mctioning data table [one with the DT formulas and not xed inputs) in your solutions to receive full credit for part e.) Management is uncertain about the market value of the equipment at the end of the project's life. What is the lowest market value where management will be indifferent

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

Financial Management Principles and Application

Authors: Arthur J. Keown, J. William Petty, David F. Scott, Jr.

10th edition

536514119, 536514110, 978-0536514110

More Books

Students also viewed these Finance questions