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Please Show work and formulas in Excel A company is considering the purchase of a new machine that will enable it to increase its expected
Please Show work and formulas in Excel
A company is considering the purchase of a new machine that will enable it to increase its expected sales. The machine will have a price of $100,000. In addition, the machine must be installed and tested. The costs of installation and testing will amount to $10,000. The machine will be depreciated using 3-years MACRS. (Use MACRS table from class excel exercise by copying the table and pasting it) The equipment will be operated for 5 years. The sales in the first year of operation are expected to be $260,000. Then, sales will grow by 3% a year. The annual operating costs (before depreciation) will consist of fixed operating costs of $25,000 plus variable operating costs equal to 70% of sales. To support the increased level of production, the inventory of raw materials will have to be increased from $30,000 to $50,000 when the machine is purchased. The additional inventory will be carried until the machine is scrapped following the 5 years of operation. At the end of the 5-year operating life of the project, it is assumed that the equipment will be sold for $40,000. The tax rate is 40% and the company's weighted average cost of capital is 9%. Build a capital budgeting model to answer the following questions: 1) What is the operating cash flow in year 1-5? & The initial outlay in year 0? 2) What is the after tax salvage at the terminal year? 3) Calculate NPV and PI for the project. Check points: NI in year 2 = $3,834 IRR = 26.73% 4) Bonus: Using data table show the effect of changes in CGS on NPV for the project Start with CGS of 30% stepping by 5% and stopping at 70%Step by Step Solution
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