Please help fix my NPV column. Feedback is in blue. Thank you for your help.

H. K Details of McCormick Plant Proposal As you know from Project 4, McCormick & Company is considering a project that requires an initial investment of $350 million to build a new plant and purchase equipment. The investment will be depreciated as a modified 9. accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the 10 company's land, which has a current, after-tax market value of $14 million. 11 12 You have been asked to refine your work to include the correct tax impact of depreciation, and the cash flow 13 impact of working capital on the capital budget evaluation. 14 The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The correct depreciation table is included at the right. 15 Year The company will need to finance some of the cash to fund $17 million in receivables and $14 million in Inventory starting at year zero. The company expects vendors to give free credit on purchases of $15 million (accounts Payable). Add the net cash outflow for working capital to the cash outflow for the plant, equipment and land in year zero. The $17 million for receivables and the $14 million for Inventory are cash outflows. The $15 million for 16 17 18 19 4. receivables is a cash inflow. 20 5 21 Assume that this net working capital is recovered as a cash inflow in year 21. 22 6. 23 The company still estimates revenues and expenses the same as it did in Project 4. See Table 2 at the right. Capital Budgeting Cost of Capital Instructions O Type here to search 43 23 The company still estimates revenues and expenses the same as it did in Project 4. See Table 2 at the right. 24 25 The company now estimates that it can sell the land in year 21 for $40 million. It will also recover the cash spent 26 on working capital in year 21. 27 Use the WACC that you calculated in the Cost of Capital tab. 28 29 Capital Budgeting Cost of Capital Instructions Type here to search 43 ** F10 F7 F6 44 The following questions willI be used to estimate risk. Please use Table 3 to calculate cash flow. 45 46 4. The controller is worried about tax increases and estimates that the tax rate with be raised to 50% (federal and 47 Maryland state) in year 4. Also there is a concern that expenses are understated. He asks, "What would happen to the NPV calculation if the cash tax expenses come in 2% higher than estimated and the tax rate increases to 50% in year 4?" This will allow a subjective evaluation of the project risk. Calculate a new cash flow time line with cash expenses 10% higher than those in Table 2 and with a 50% tax rate. Use Table 3 Your cash flows in Table 3 are correct 48 49 50 51 52 %3D Cost of Capital Capital Budgeting Instructions Type here to search 43 $44.54 Not correct Table 3 NPV= 37 Tax in $Millions Cash outflow, 27.5% rate in Cash from Depreciation in Taxable Income years 1, 2, 3 and After tax Cash Flow In Revenue in expenses in NPV $Millions in $ Millions $50.02 $Millions $Millions 50% there after -$3.46 -$12.70 $Millions 38 Year 39 $40.90 $27.27 $1,762.56 -$12.57 $1,800 $1,860.48 $52.22 $34.82 $31.33 The cash flows in Table 3 are $85.72 $46.20 -$19.62 $1,900 $2,000 $2,100 $2,200 $2,300 $2,400 2. 40 correct. The NPV column is $61.22 $47.00 -$5.40 $1,958.40 41 3. incorrecy. Your column assumes that all cash flows are in year 1 $29.13 $43.70 $2,056.32 $43.72 $31.26 -$0.04 $14.50 $16.62 42 $7.25 $38.51 $25.67 $2,154.24 43 and uses a discount rate of 50% $26.35 $39.53 $40.59 $33.80 $8.31 $31.22 $2,252.16 $2,350.08 $2,448.00 44 $27.06 $31.26 $9.33 $18.67 45 $22.53 $18.20 $27.04 $15.61 $36.39 $2,500 46 $27.04 $18.03 $54.08 $0.00 $2,600 $2,545.92 47 9. $28.08 $18.72 $56.16 $54.08 $52.00 $28.08 $0.00 $2,643.84 10 $2,700 $2,600 48 $18.03 $27.04 $27.04 $0.00 $2,545.92 49 11 $26.00 $17.33 $26.00 $2,448.00 $2,350.08 $2,500 $2,400 50 12 $16.64 $24.96 $24.96 $49.92 51 13 Cost of Capital Capital Budgeting Instructions 9:59 PM 92% 12/15/2019 43 Type here to search Dele esert PrtSc F12 F11 F19 R. $2,200 $2,000 $1,800 $1,500 $1,200 $800 $400 $2,154.24 $1,958.40 $1,762.56 $1,468.80 $1,175.04 $783.36 $391.68 $45.76 $41.60 $22.88 $20.80 14 $22.88 $20.80 $18.72 $12.48 $15.60 $12.48 $8.32 $4.16 NPV= $381.55 $15.25 15 $13.87 16 $37.44 $18.72 $15.60 $12.48 $8.32 $4.16 $31.20 17 $10.40 18 $24.96 $8.32 19 $16.64 $5.55 $2.77 $8.32 8. 20 59 50 61 62 63 64 65 66 67 68 69 70 Capital Budgeting Cost of Capital Instructions 92% O Type here to search L. Cash from Revenue in $Millions $1,800 $1,900 Cash outflow, expenses in $Millions Depreciation in $Millions $1,728 $1,824 $1,920 $2,016 $2,112 $2,208 $2,304 $2,400 $2,496 $2,592 $2,496 Taxable Income Tax in $Millions After tax Cash Flow In in $ Millions $50.02 $85.72 $61.22 $43.72 $31.26 $31.22 $31.26 $15.61 27.5% rate $21.99 -$9.72 $18.79 $40.29 $Millions NPV $6.05 $65.95 $78.67 $74.83 $72.92 $72.40 $75.29 $78.20 $2.31 2. -$2.67 $5.17 $2.76 $2,000 $2,100 $2,200 $2,300 $2,400 $2,500 $2,600 $2,700 $2,600 $2,500 $2,400 $2,200 3 $2.63 $11.08 $2.56 $15.60 $16.71 $17.80 $56.75 $2.54 $2.64 $2.74 6. $60.78 $64.75 $84.39 $104.C $108.00 $104.00 $23.21 $76.79 $2.69 $75.40 9. $28.60 $29.70 $28.60 $27.50 $26.40 $24.20 $22.00 $2.65 $2.75 10 $78.30 $75.40 $72.50 $69.60 $2.65 11 $2,400 $100.00 $2.54 12 $96.00 $88.00 $80.00 $2,304 $2,112 $2.44 $2.24 13 $63.80 14 $58.00 $2.04 $1,920 $2,000 Cost of Capital Capital Budgeting 10:01 PM 92% 12/15/2019 carch 43 4. 15 92.24 $2,000 $1,800 $1,920 $1,728 $1,440 $80.00 $72.00 $60.00 $48.00 $32.00 $22.00 $58.00 $52.20 $43. $34.80 $23.20 $27.60 $2.04 $19.80 $16.50 $13.20 $8.80 $4.40 $1.83 $1,500 $1,200 $800 $400 $1.53 $1,152 $1.22 $768 $0.81 $384 $16.00 $0.97 $44.54 Not correct Table 3 NPV= A tal Capital Budgeting 92% 43 Delete Insert PriSc F12 F11 F10 F9 Backsoac H. K Details of McCormick Plant Proposal As you know from Project 4, McCormick & Company is considering a project that requires an initial investment of $350 million to build a new plant and purchase equipment. The investment will be depreciated as a modified 9. accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the 10 company's land, which has a current, after-tax market value of $14 million. 11 12 You have been asked to refine your work to include the correct tax impact of depreciation, and the cash flow 13 impact of working capital on the capital budget evaluation. 14 The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The correct depreciation table is included at the right. 15 Year The company will need to finance some of the cash to fund $17 million in receivables and $14 million in Inventory starting at year zero. The company expects vendors to give free credit on purchases of $15 million (accounts Payable). Add the net cash outflow for working capital to the cash outflow for the plant, equipment and land in year zero. The $17 million for receivables and the $14 million for Inventory are cash outflows. The $15 million for 16 17 18 19 4. receivables is a cash inflow. 20 5 21 Assume that this net working capital is recovered as a cash inflow in year 21. 22 6. 23 The company still estimates revenues and expenses the same as it did in Project 4. See Table 2 at the right. Capital Budgeting Cost of Capital Instructions O Type here to search 43 23 The company still estimates revenues and expenses the same as it did in Project 4. See Table 2 at the right. 24 25 The company now estimates that it can sell the land in year 21 for $40 million. It will also recover the cash spent 26 on working capital in year 21. 27 Use the WACC that you calculated in the Cost of Capital tab. 28 29 Capital Budgeting Cost of Capital Instructions Type here to search 43 ** F10 F7 F6 44 The following questions willI be used to estimate risk. Please use Table 3 to calculate cash flow. 45 46 4. The controller is worried about tax increases and estimates that the tax rate with be raised to 50% (federal and 47 Maryland state) in year 4. Also there is a concern that expenses are understated. He asks, "What would happen to the NPV calculation if the cash tax expenses come in 2% higher than estimated and the tax rate increases to 50% in year 4?" This will allow a subjective evaluation of the project risk. Calculate a new cash flow time line with cash expenses 10% higher than those in Table 2 and with a 50% tax rate. Use Table 3 Your cash flows in Table 3 are correct 48 49 50 51 52 %3D Cost of Capital Capital Budgeting Instructions Type here to search 43 $44.54 Not correct Table 3 NPV= 37 Tax in $Millions Cash outflow, 27.5% rate in Cash from Depreciation in Taxable Income years 1, 2, 3 and After tax Cash Flow In Revenue in expenses in NPV $Millions in $ Millions $50.02 $Millions $Millions 50% there after -$3.46 -$12.70 $Millions 38 Year 39 $40.90 $27.27 $1,762.56 -$12.57 $1,800 $1,860.48 $52.22 $34.82 $31.33 The cash flows in Table 3 are $85.72 $46.20 -$19.62 $1,900 $2,000 $2,100 $2,200 $2,300 $2,400 2. 40 correct. The NPV column is $61.22 $47.00 -$5.40 $1,958.40 41 3. incorrecy. Your column assumes that all cash flows are in year 1 $29.13 $43.70 $2,056.32 $43.72 $31.26 -$0.04 $14.50 $16.62 42 $7.25 $38.51 $25.67 $2,154.24 43 and uses a discount rate of 50% $26.35 $39.53 $40.59 $33.80 $8.31 $31.22 $2,252.16 $2,350.08 $2,448.00 44 $27.06 $31.26 $9.33 $18.67 45 $22.53 $18.20 $27.04 $15.61 $36.39 $2,500 46 $27.04 $18.03 $54.08 $0.00 $2,600 $2,545.92 47 9. $28.08 $18.72 $56.16 $54.08 $52.00 $28.08 $0.00 $2,643.84 10 $2,700 $2,600 48 $18.03 $27.04 $27.04 $0.00 $2,545.92 49 11 $26.00 $17.33 $26.00 $2,448.00 $2,350.08 $2,500 $2,400 50 12 $16.64 $24.96 $24.96 $49.92 51 13 Cost of Capital Capital Budgeting Instructions 9:59 PM 92% 12/15/2019 43 Type here to search Dele esert PrtSc F12 F11 F19 R. $2,200 $2,000 $1,800 $1,500 $1,200 $800 $400 $2,154.24 $1,958.40 $1,762.56 $1,468.80 $1,175.04 $783.36 $391.68 $45.76 $41.60 $22.88 $20.80 14 $22.88 $20.80 $18.72 $12.48 $15.60 $12.48 $8.32 $4.16 NPV= $381.55 $15.25 15 $13.87 16 $37.44 $18.72 $15.60 $12.48 $8.32 $4.16 $31.20 17 $10.40 18 $24.96 $8.32 19 $16.64 $5.55 $2.77 $8.32 8. 20 59 50 61 62 63 64 65 66 67 68 69 70 Capital Budgeting Cost of Capital Instructions 92% O Type here to search L. Cash from Revenue in $Millions $1,800 $1,900 Cash outflow, expenses in $Millions Depreciation in $Millions $1,728 $1,824 $1,920 $2,016 $2,112 $2,208 $2,304 $2,400 $2,496 $2,592 $2,496 Taxable Income Tax in $Millions After tax Cash Flow In in $ Millions $50.02 $85.72 $61.22 $43.72 $31.26 $31.22 $31.26 $15.61 27.5% rate $21.99 -$9.72 $18.79 $40.29 $Millions NPV $6.05 $65.95 $78.67 $74.83 $72.92 $72.40 $75.29 $78.20 $2.31 2. -$2.67 $5.17 $2.76 $2,000 $2,100 $2,200 $2,300 $2,400 $2,500 $2,600 $2,700 $2,600 $2,500 $2,400 $2,200 3 $2.63 $11.08 $2.56 $15.60 $16.71 $17.80 $56.75 $2.54 $2.64 $2.74 6. $60.78 $64.75 $84.39 $104.C $108.00 $104.00 $23.21 $76.79 $2.69 $75.40 9. $28.60 $29.70 $28.60 $27.50 $26.40 $24.20 $22.00 $2.65 $2.75 10 $78.30 $75.40 $72.50 $69.60 $2.65 11 $2,400 $100.00 $2.54 12 $96.00 $88.00 $80.00 $2,304 $2,112 $2.44 $2.24 13 $63.80 14 $58.00 $2.04 $1,920 $2,000 Cost of Capital Capital Budgeting 10:01 PM 92% 12/15/2019 carch 43 4. 15 92.24 $2,000 $1,800 $1,920 $1,728 $1,440 $80.00 $72.00 $60.00 $48.00 $32.00 $22.00 $58.00 $52.20 $43. $34.80 $23.20 $27.60 $2.04 $19.80 $16.50 $13.20 $8.80 $4.40 $1.83 $1,500 $1,200 $800 $400 $1.53 $1,152 $1.22 $768 $0.81 $384 $16.00 $0.97 $44.54 Not correct Table 3 NPV= A tal Capital Budgeting 92% 43 Delete Insert PriSc F12 F11 F10 F9 Backsoac