Question
Please explain how to solve this problem with excel. United Technologies is considering building a new manufacturing plant to produce super energy efficient Home Climate
Please explain how to solve this problem with excel.
United Technologies is considering building a new manufacturing plant to produce super energy efficient Home Climate Control Systems through its Carrier division. The project would require an initial investment in new production facilities and equipment of $400 million in 2016 would fall in the 5-year MACRS depreciation class. United Technologies has already spent $20 million designing and developing these new systems and they will need additional net working capital of $50 million in 2016. The table following this paragraph contains sales, sale price, variable cost & fixed cost projections over the expected life of the project. The companys marginal tax rate is 40% and this project has a WACC of 9.5%. Year Expected Unit Sales Avg. Sales Price/unit Avg. Variable costs/unit Additional Fixed Costs 2017 100,000 $3000 $1800 $210,000 2018 120,000 $3000 $1800 $215,000 2019 130,000 $3100 $1900 $220,000 2020 135,000 $3100 $1950 $225,000 2021 130,000 $3100 $1950 $230,000 At the end of 2021, United Technologies will end the project and can sell their production facility & equipment for $85 million in addition to liquidating the extra net working capital that was needed for the project. Answer the following. 1. What is the initial cash flow for the project? 2. What are the annual operating cash flows for the project. 3. What is the projects terminal cash flow? 4. Calculate the NPV, IRR, and MIRR for the project. 5. Should UTC accept this project? Explain why.
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