Please show the formulas.

5 You recently went to work for Allied Components Company, a supplier of auto repair parts used 6 in the after-market with products from Daimler AG, Ford, Toyota and other automakers. 7 Your boss, the chief financial officer (CFO), has just handed you the estimated cash flows for two 8 proposed projects. Project L involves adding a new item to the firm's ignition system line; it would 9 take some time to build up the market for this product, so the cash inflows would increase over 10 time. Project S involves an add-on to an existing line, and its cash flows would decrease over 11 time. Both projects have 3-year lives because Allied is planning to introduce entirely new models 12 after 3 years. 13 14 Here are the projects' cash flows (in thousands of dollars): 15 Present value Year CFL CFL CFS 17 0 ($100) ($100) 18 1 $10 $70 19 2 $60 $50 20 3 $80 $20 16 CFS 22 Depreciation, salvage values, net operating working capital requirements, and tax effects are all 23 included in these cash flows. The CFO also made subjective risk assessments of each project, 24 and he concluded that both projects have risk characteristics that are similar to the firm's average 25 project. Allied's WACC is 10%. You must determine whether one or both of the projects should 26 be accepted. 27 (1) What is each project's NPV? Use 2 methods 10% $ 100.00 CFS Present value CFL CFS 28 PARTA 29 30 31 Cost of Capital 32 Initial cost 33 34 35 Year 36 0 37 1 38 2 39 3 40 41 42 43 44 45 Use formula 46 47 NPV of Excel 48 49 CFL ($100) $10 $60 $80 ($100) $70 $50 $20 S CF A B E 57 PART B 58 (1) What is each project's IRR? 59 60 The internal rate of return (IRR) is that discount rate which forces the NPV of a project to equal 61 zero. 62 N 63 NPV = $0 = E t=0 (1 + IRR) 64 65 The solution to this equation can be found using Excel's IRR function. 66 67 use solver to find the IRR 68 69 Use formula Accept Reject? 70 IRR function 71 IRR solver 72 Decision Chart Title 60 50 40 30 20 73 PART C 74 (1) Draw NPV profiles for Projects L and S. At what discount rate do the profiles cross? 75 WACC NPVL NPVIS) 76 77 0% 78 3% 79 6% 80 9% 81 12% 82 15% 83 18% 84 21% 85 24% 86 27% 87 30% 88 33% 89 36% 90 91 92 10 0 -100 0.05 0.1 0.15 0.2 0.25 0.35 0.4 -20 -30 -40 NPV(L) 18.78287002 NPV(S) 19.9849737 PART D 97 98 99 Finding the crossover point 100 IRR = Crossover rate = 101 difference in CF CFL-CFS 102 103 Year 104 105 106 107 108 0 1 CFL -100 10 60 80 CFS -100.00 70.00 50.00 20.00 110 PARTE 111 (1) Find the MIRRs for Projects L and S. 112 113 MIRR is that discount rate which equates the present value of the terminal value of the inflows, 114 compounded at the cost of capital, to the present value of the costs. The projects' modified IRRs 115 can be solved for by using Excel's MIRR function, by entering the project's cash flows and using the 116 WACC as both the discount rate and the reinvestment rate. 117 118 Reinvestment rate 12% Year CEL CFS FV of CFs FV of CFs 119 Finance rate 12% 0 (100.00 $ (100.00) 120 with excel function with formula 1 $ $ 10.00 $ 70.00 121 MIRRL = 2 $ 60.00 $ 50.00 3 $ $ 80.00 $ 20.00 122 MIRRS 123 124 D E G H Years 1 A B 124 125 126 PARTE 127 (1) Find the paybacks for Projects L and S. 128 129 Payback Calculations 130 131 Project L 132 133 134 135 136 Payback L = 137 138 139 Project S 140 141 142 143 144 Payback S 145 0 + -100 -100 2 + 60 -30 3 I 80 50 Cash Flow Cumulative Cash Flow 10 -90 Years 1 2 1 1 Cash Flow Cumulative Cash Flow -100 -100 70 -30 50 20 20 40 11