please help me with question #3 concerning my NPV and IRR. Feedback is typed in Blue. Thank you so much for your help.

please see attachments for question 3 update. Thank you for your help.

7 & G H 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 accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $14 million. You have been asked to refine your work to include the correct tax impact of depreciation, and the cash flow impact of working capital on the capital budget evaluation. 16 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. 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 receivables is a cash inflow. 18 Assume that this net working capital is recovered as a cash inflow in year 21. The company still estimates revenues and expenses the same as it did in Project 4. See Table 2 at the right. Instructions Cost of Capital Capital Budgeting O Type here to search et e L e The company still estimates revenues and expenses the same as it did in Project 4. See Table 2 at the right. The company now estimates that it can sell the land in year 21 for $40 million. It will also recover the cash spent on working capital in year 21. 3 Use the WACC that you calculated in the Cost of Capital tah. I Instructions Cost of Capital Capital Budgeting O Type here to search recovery of the WURg Capital. Yea 3. Calculate the new NPV and IRR. Should the Project be accepted? NPV = ($350,000,000.00) The project should be accepted. This is incorrect. Your work has incorrect use of the NPV function and no IRR calculation. Please review the videos that I posted in the discussion area or the zoom session. to calculate cash flow 43 - The following questions will he liced to estimate rick Please lice Table Instructions Cost of Capital Capital Budgeting (+) O Type here to search 5 Year 17 18 Cash from Cash outflow, Revenue in expenses in Depreciation in Taxable Income Tax in $Millions After tax Cash Flow In $Millions $Millions $Millions in $ Millions 27.5% rate $Millions NPV 1 $1,800 $1,728 $50.02 $21.99 $6.05 $65.95 $2.31 2 $1,900 $1,824 $85.72 $9.72 -$2.67 $78.67 $2.76 3 $2,000 $1,920 $61.22 $18.79 $5.17 $74.83 $2.63 $2,100 $2,016 $43.72 $40.29 $11.08 $72.92 $2.56 5 $2,200 $2,112 $31.26 $56.75 $15.60 $72.40 $2.54 $2,300 $2,208 $31.22 $60.78 $16.71 $75.29 $2.64 $2,400 $2,304 $31.26 $64.75 $17.80 $78.20 $2.74 8 $2,500 $2,400 $15.61 $84.39 $23.21 $76.79 $2.69 9 $2,600 $2,496 $104.00 $28.60 $75.40 $2.65 10 $2,700 $2,592 $108.00 $29.70 $78.30 $2.75 11 $2,600 $2,496 $104.00 $28.60 $75.40 $2.65 12 $2,500 $2,400 $100.00 $27.50 $72.50 $2.54 13 $2,400 $2,304 $96.00 $26.40 $69.60 $2.44 14 $2,200 $2,112 $88.00 $24.20 $63.80 $2.24 15 $2,000 $1,920 $80.00 $22.00 $58.00 $2.04 Instructions Cost of Capital Capital Budgeting 7 ANSON 28 O Type here to search o e Lew 94% M N 16 U V W 18 19 20 $1,800 $1,500 $1,200 $800 $400 $1,728 $1,440 $1,152 $768 $384 Table 3 $72.00 $60.00 $48.00 $32.00 $16.00 $19.80 $16.50 $13.20 $8.80 $4.40 $52.20 $43.50 $34.80 $23.20 $27.60 NPV= S T $1.83 $1.53 $1.22 $0.81 $0.97 $44.54 Not correct B Year EWNO Tax in Millions Cash from Cash outflow, 27.5% rate in Revenue in expenses in Depreciation in Taxable income years 1, 2, 3 and After tax Cash Flow In SMillions Millions SMillions in $ Millions 50% there after Millions NPV 1 $1,800 $1,762.56 $50.02 $12.57 $3.46 $40.90 $27.27 2 $1,900 $1,860.48 $85.72 $46.20 $12.70 $52.22 $34.82 3 $2,000 $1,958.40 $61.22 -$19.62 $5.40 $47.00 $31.33 4 $2,100 $2,056.32 $43.72 $0.04 $0.02 $43.70 $29.13 5 $2,200 $2,154.24 $31.26 $14.50 $7.25 $38.51 $25.67 6 $2,300 $2,252.16 $31.22 $16.62 $8.31 $39.53 $26.35 7 $2,400 $2,350.08 $31.26 $18.67 $9.33 $40.59 $27.06 8 $2,500 $2,448.00 $15.611 $36.39 $18.20 $33.80 $22.53 Instructions Cost of Capital Capital Budgeting The cash flows in Table 3 are correct. The NPV column is incorrecy. Your column assumes that all cash flows are in year 1 and uses a discount rate of 50% O Type here to search 9:52 PM 12/15/2019 $15.61 $0.00 $0.00 $0.00 M $2,500 $2,600 $2,700 $2,600 $2,500 $2,400 $2,200 $2,000 $1,800 $1,500 $1,200 $800 $400 $2,448.00 $2,545.92 $2,643.84 $2,545.92 $2,448.00 $2,350.08 $2,154.24 $1,958.40 $1,762.56 $1,468.80 $1,175.04 $783.36 $391.68 $36.39 $54.08 $56.16 $54.08 $52.00 $49.92 $45.76 $41.60 $37.44 $31.20 $24.96 $16.64 $8.32 $18.20 $27.04 $28.08 $27.04 $26.00 $24.96 $22.88 $20.80 $18.72 $15.60 $12.48 $8.32 $4.16 $33.80 $22.53 $27.04 $18.03 $28.08 $18.72 $27.04 $18.03 $26.00 $17.33 $24.96 $16.64 $22.88 $15.25 $20.80 $13.87 $18.72 $12.48 $15.60 $10.40 $12.48 $8.32 $8.32 $5.55 $4.16 $2.77 NPV= $381.55 18 19 20 999 8. Now Instructions Cost of Capital Capital Budgeting O Type here to search 22 Q1. 23 = [rs=rRF+ (RPM) B] 3% 24 RPM 6% 0.01 25 B= 26 27 3.06% The results of the CAPM formula are 3.06% as you calculated herer 29 While this is a reasonable cost oif equity, it is not the result of the CAPM theory 30 31 32 Q 2. Direct Dividend Model 33 Equation rs= (D/Po) +g | 34 D= 35 Po 36 g= 37 Cost of Equity = Good 2.38 135 7% 8.763% Instructions Cost of Capital Capital Budgeting N 4% 44 7% 9% Q 41 Q3. 42 43 Debt Rate There is no Beta in this method. 45 Avg. Rate premium 3% to 5% 46 Lowest = 3% plus 4% equlas 7% as the lowest reasonable 47 Highest cost of equity. 5% plus 3% equals 9% as the 48 relative risk= 7% to 9% highest reasonable cost of equity. Forget the 49 CAPM method here 50 51 Q 5. WACC= Wo Rp (1-T)+ W, rS 52 Value of equity= $17,500,000,000.00 53 Cost of Debt= 4% 54 Tax Rates 27.50% 55 Value of Debt. $4.70 Value of debt should be about $4.7 billion not $47 billion 56 risk free rates 2.25% Where did you get $46.95 billion for debt? 57 Weight of Debt 0% Show your calculation of the value of debt 58 Weight of Equity= 1% 59 Cost of equity= 12% 60 WACC= 10.70% Correct method but incorrect answer because weights are incorrect 61 Instructions Cost of Capital Capital Budgeting 7 & G H 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 accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $14 million. You have been asked to refine your work to include the correct tax impact of depreciation, and the cash flow impact of working capital on the capital budget evaluation. 16 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. 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 receivables is a cash inflow. 18 Assume that this net working capital is recovered as a cash inflow in year 21. The company still estimates revenues and expenses the same as it did in Project 4. See Table 2 at the right. Instructions Cost of Capital Capital Budgeting O Type here to search et e L e The company still estimates revenues and expenses the same as it did in Project 4. See Table 2 at the right. The company now estimates that it can sell the land in year 21 for $40 million. It will also recover the cash spent on working capital in year 21. 3 Use the WACC that you calculated in the Cost of Capital tah. I Instructions Cost of Capital Capital Budgeting O Type here to search recovery of the WURg Capital. Yea 3. Calculate the new NPV and IRR. Should the Project be accepted? NPV = ($350,000,000.00) The project should be accepted. This is incorrect. Your work has incorrect use of the NPV function and no IRR calculation. Please review the videos that I posted in the discussion area or the zoom session. to calculate cash flow 43 - The following questions will he liced to estimate rick Please lice Table Instructions Cost of Capital Capital Budgeting (+) O Type here to search 5 Year 17 18 Cash from Cash outflow, Revenue in expenses in Depreciation in Taxable Income Tax in $Millions After tax Cash Flow In $Millions $Millions $Millions in $ Millions 27.5% rate $Millions NPV 1 $1,800 $1,728 $50.02 $21.99 $6.05 $65.95 $2.31 2 $1,900 $1,824 $85.72 $9.72 -$2.67 $78.67 $2.76 3 $2,000 $1,920 $61.22 $18.79 $5.17 $74.83 $2.63 $2,100 $2,016 $43.72 $40.29 $11.08 $72.92 $2.56 5 $2,200 $2,112 $31.26 $56.75 $15.60 $72.40 $2.54 $2,300 $2,208 $31.22 $60.78 $16.71 $75.29 $2.64 $2,400 $2,304 $31.26 $64.75 $17.80 $78.20 $2.74 8 $2,500 $2,400 $15.61 $84.39 $23.21 $76.79 $2.69 9 $2,600 $2,496 $104.00 $28.60 $75.40 $2.65 10 $2,700 $2,592 $108.00 $29.70 $78.30 $2.75 11 $2,600 $2,496 $104.00 $28.60 $75.40 $2.65 12 $2,500 $2,400 $100.00 $27.50 $72.50 $2.54 13 $2,400 $2,304 $96.00 $26.40 $69.60 $2.44 14 $2,200 $2,112 $88.00 $24.20 $63.80 $2.24 15 $2,000 $1,920 $80.00 $22.00 $58.00 $2.04 Instructions Cost of Capital Capital Budgeting 7 ANSON 28 O Type here to search o e Lew 94% M N 16 U V W 18 19 20 $1,800 $1,500 $1,200 $800 $400 $1,728 $1,440 $1,152 $768 $384 Table 3 $72.00 $60.00 $48.00 $32.00 $16.00 $19.80 $16.50 $13.20 $8.80 $4.40 $52.20 $43.50 $34.80 $23.20 $27.60 NPV= S T $1.83 $1.53 $1.22 $0.81 $0.97 $44.54 Not correct B Year EWNO Tax in Millions Cash from Cash outflow, 27.5% rate in Revenue in expenses in Depreciation in Taxable income years 1, 2, 3 and After tax Cash Flow In SMillions Millions SMillions in $ Millions 50% there after Millions NPV 1 $1,800 $1,762.56 $50.02 $12.57 $3.46 $40.90 $27.27 2 $1,900 $1,860.48 $85.72 $46.20 $12.70 $52.22 $34.82 3 $2,000 $1,958.40 $61.22 -$19.62 $5.40 $47.00 $31.33 4 $2,100 $2,056.32 $43.72 $0.04 $0.02 $43.70 $29.13 5 $2,200 $2,154.24 $31.26 $14.50 $7.25 $38.51 $25.67 6 $2,300 $2,252.16 $31.22 $16.62 $8.31 $39.53 $26.35 7 $2,400 $2,350.08 $31.26 $18.67 $9.33 $40.59 $27.06 8 $2,500 $2,448.00 $15.611 $36.39 $18.20 $33.80 $22.53 Instructions Cost of Capital Capital Budgeting The cash flows in Table 3 are correct. The NPV column is incorrecy. Your column assumes that all cash flows are in year 1 and uses a discount rate of 50% O Type here to search 9:52 PM 12/15/2019 $15.61 $0.00 $0.00 $0.00 M $2,500 $2,600 $2,700 $2,600 $2,500 $2,400 $2,200 $2,000 $1,800 $1,500 $1,200 $800 $400 $2,448.00 $2,545.92 $2,643.84 $2,545.92 $2,448.00 $2,350.08 $2,154.24 $1,958.40 $1,762.56 $1,468.80 $1,175.04 $783.36 $391.68 $36.39 $54.08 $56.16 $54.08 $52.00 $49.92 $45.76 $41.60 $37.44 $31.20 $24.96 $16.64 $8.32 $18.20 $27.04 $28.08 $27.04 $26.00 $24.96 $22.88 $20.80 $18.72 $15.60 $12.48 $8.32 $4.16 $33.80 $22.53 $27.04 $18.03 $28.08 $18.72 $27.04 $18.03 $26.00 $17.33 $24.96 $16.64 $22.88 $15.25 $20.80 $13.87 $18.72 $12.48 $15.60 $10.40 $12.48 $8.32 $8.32 $5.55 $4.16 $2.77 NPV= $381.55 18 19 20 999 8. Now Instructions Cost of Capital Capital Budgeting O Type here to search 22 Q1. 23 = [rs=rRF+ (RPM) B] 3% 24 RPM 6% 0.01 25 B= 26 27 3.06% The results of the CAPM formula are 3.06% as you calculated herer 29 While this is a reasonable cost oif equity, it is not the result of the CAPM theory 30 31 32 Q 2. Direct Dividend Model 33 Equation rs= (D/Po) +g | 34 D= 35 Po 36 g= 37 Cost of Equity = Good 2.38 135 7% 8.763% Instructions Cost of Capital Capital Budgeting N 4% 44 7% 9% Q 41 Q3. 42 43 Debt Rate There is no Beta in this method. 45 Avg. Rate premium 3% to 5% 46 Lowest = 3% plus 4% equlas 7% as the lowest reasonable 47 Highest cost of equity. 5% plus 3% equals 9% as the 48 relative risk= 7% to 9% highest reasonable cost of equity. Forget the 49 CAPM method here 50 51 Q 5. WACC= Wo Rp (1-T)+ W, rS 52 Value of equity= $17,500,000,000.00 53 Cost of Debt= 4% 54 Tax Rates 27.50% 55 Value of Debt. $4.70 Value of debt should be about $4.7 billion not $47 billion 56 risk free rates 2.25% Where did you get $46.95 billion for debt? 57 Weight of Debt 0% Show your calculation of the value of debt 58 Weight of Equity= 1% 59 Cost of equity= 12% 60 WACC= 10.70% Correct method but incorrect answer because weights are incorrect 61 Instructions Cost of Capital Capital Budgeting