Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please help me answer this excel problem with linked cells. Given are the information and cells need to be created by ourselves from the start

Please help me answer this excel problem with linked cells.

Given are the information and cells need to be created by ourselves from the start in excel. The final answer asked from the question need to be highlighted.

image text in transcribed
2. (6 pts) Momma Bear Company, show all work. A project requires an initial investment of $200,000 and is expected to produce additional sales revenue of $125,000 per year, which thereafter should grow at the rate of inflation. Costs of goods sold are estimated at 61% of sales. It is expected that cashflows will carry on for 6 years. In year 7 the project will wind down, and revenue will be half of the year 6 amount. The project will require additional working capital of 10% of sales. As working capital ramps up, charge 1/2 of the year 1 value (5% of sales) in Year 0 and then apply the additional amount required each year. Simply apply the same growth rate as a use of cash. At the end of the project life, assume all the working capital is recovered in year 7. Momma Bear's public debt trades at 8% and they estimate their cost of equity at 14%, the debtlequity composition is 40/60 Momma Bear expects no salvage value Expect inflation to be 2% Scenario One: Under the old tax law, corporate income taxes were 35% and assets could be depreciated on a modified accelerate cost recovery system (MACRS) schedule which permitted depreciation of 20%, 32%, 20%, 15% and 12% of the asset purchase cost in years 1-5 respectively. Fill (only) these cells with yellow paint NPV (1 pt), and IRR (1 pt); no partial credit. (2pts) Scenario Two: Under the new tax law, Momma Bear pays corporate taxes at a rate of 21% and - again under the new tax law - accelerated depreciation allows the depreciation of the entire initial investment for tax purposes in the first year Fill (only) these cells with yellow paint: Cost of Capital (1 pt), NPV (1 pt), IRR (1 pt), no partial credit. (3 pts) What was the impact of the new tax changes on the cost of capital, and the attractiveness of corporate investments? (one sentence, highlighted in yellow, 1 point)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered 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

Auditing A Practical Approach with Data Analytics

Authors: Raymond N. Johnson, Laura Davis Wiley, Robyn Moroney, Fiona Campbell, Jane Hamilton

1st edition

1119401747, 978-1119401742

Students also viewed these Finance questions