Please help me to fill out all highlighted in yellow and answer all 6 questions. Thank you
Learning Objectives 1. Understand how to use EXCEL Spreadsheet (a) Develop proforma Income Statement Using Excel Spreadsheet (b) Compute Net Project Cashflows, NPV, and IRR (c) Develop problem-solving and critical thinking skills and make long-term investment decisions 1) Life Period of the Equipment = 4 years 2) New equipment cost 3) Equipment ship & install cost 4) Related start up cost 5) Inventory increase 6) Accounts Payable increase 7) Equip. salvage value before tax ($200,000) ($35,000) ($5,000) $25,000 $5,000 $15,000 8) Sales for first year (1) 9) Sales increase per year 10) Operating cost (60% of Sales) (as a percent of sales in Year 1) 11) Depreciation 12) Marginal Corporate Tax Rate (T) 13) Cost of Capital (Discount Rate) $ 200,000 5% $ (120,000) -60% Use 3-yr MACRIS 35% 10% Filling data in the cells colored only. Do not write in any other cell. Do not delete any row or column ESTIMATING Initial Outlay (Cash Flow, CFO, T=0) -70 CFO CF1 CF3 CF2 2 CF4 4 EBIT = Sales - Costs - D Year Investments: 1) Equipment cost 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1+2+3) 4) Net Working Capital Total Initial Outlay $ $ negative Operations: Sales Operating Cost Depreciation EBIT Taxes Net Income $ Add back Depreciation $ Total Operating Cash Flow $ $ $ Terminal values: 1) Change in net WC 2) Salvage value (after tax) Total $ Project Net Cash Flows $ $ $ $ $ NPV = $0.00 IRR = #NUMI Payback 0.00 Profitability Index = #DIV/0! Discounted Payback = 0.00 MACRS TABLE Depreciation rate for recovery period Year 3-year 5-year 7-year 10-year 15-year 20-year 1 2 3 33.33% 44.45 14.81 7.41 20.00% 32.00 19.20 11.52 11.52 14.29% 24.49 17.49 12.49 8.93 10.00% 18.00 14.40 11.52 9.22 5.00% 9.50 8.55 7.70 6.93 3.750% 7.219 6.677 6.177 5.713 4 5 5.76 6 7 8 9 10 8.92 8.93 4.46 7.37 6.55 6.55 6.56 6.55 6.23 5.90 5.90 5.91 5.90 5.285 4.888 4.522 4.462 4.461 3.28 11 12 13 14 15 5.91 5.90 5.91 5.90 5.91 4.462 4.461 4.462 4.461 4.462 2.95 16 17 18 19 20 4.461 4.462 4.461 4.462 4.461 21 2.231 Depreciation Calculation $ Depreciation Basis: # of years: Macrs 4 3 years A Basis B Macrs % Year 1 2 3 4 A*B Depreciation $0 $0 $0 $0 0% 0 Payback Period Year Projected CF Cummulative CF Count $ 0 1 2 3 A A A A 4 Payback period 0.00 years Discounted Payback Period Present Value Year Count Discount factor 1 Cummulative CF $ $ 0 1 2 3 4 Projected CF $ $ $ $ $ Payback period Discounted CF $0 $0 $0 $0 $0 A A A A | A 0.00 years Q#1 Would you accept the project based on NPV, IRR? Would you accept the project based on Payback rule if project cut-off is 3 years? (a) Q#2 Impact of 2017 Tax Cut Act on Net Income, Cash Flows and Capital Budgeting (Investment ) Decisions Estimate NPV, IRR and Payback Period of the project if tax rate equals to 21%. Would you accept or reject the project? (b) As a CFO of the firm, which of the above two scenario (1) or (2) would you choose? Why? Q#3 How would you explain to your CEO what NPV means? Q#4 What are advantages and disadvantages of using only Payback method? Q#5 What are advantages and disadvantages of using NPV versus IRR? Q#6 Explain the difference between independent projects and mutually exclusive projects. When you are confronted with Mutually Exclusive Projects and have coflicts with NPV and IRR results, which criterion would you use (NPV or IRR) and why
