Project Part (B) As an enginner in RedOak company, your department head asked you to perform an analysis of installing MAP/TOP in the manufacturing planning devision your company (MAP/TOP is a communications integration software system developed by Boeing). The entire system would be implemented and operated by one of two consultant groups: Hi Tone or Extra-S. The first cost (includes MAP/TOP software, hardware, implementation and training costs) that your company will agree to pay is still in question. The possible variation of the initial cost estimate P is included in the consultants' proposals below. (100% of P means use the whole amount of estimated P). Consultant Hi Tone Extra- First cost estimate P, $ -500,000 -800,000 Actual first cost ($) 1.05(-500,000) =-525,000 -800,000 AOC $/year - 150,000 -120,000 Salvage value, $ 125,000 210,000 Life of contract, years 3 6 Annual Revenue 390,000 350,000 The first cost of Hi-Tone is 105% of its P and the first cost of Extra-S is 100% of its P. Both system are depreciated based on 5-year MACRS. Hi-Tone is sold for $130,000 in year 4. Put in table the cash flow for both alternatives from year 0 to year Including CFBT, depreciation, depreciation recapture, taxable income, taxes, and ATCF using effective tax rate Te = 38%. The After tax MARR for your company is 8%. a- Find the after tax present worth for both alternatives by hand i.e. write down the equation of calculating PW of ATCF). Answer: b- Find the PW of ATCF for both alternative using NPV function, select the better alternative. Answer: - Use IRR function to find the after tax ROR of each alternative. Answer: d-Use ROR analysis for ATCF to selet the suitable alternative. Answer: B D E F G H 1 J K L M N D2 DR TI 1 2 3 4 0 0 0 Hi-Tone Year GI 0 0 1 390000 2 390000 3 390000 4 390000 5 390000 6 390000 5 6 0 OE 0 150000 150000 150000 150000 150000 150000 P&S CFBT -525000 -525000 240000 240000 -525000 -285000 130000 370000 240000 125000 365000 D rate 0 0.2 0.32 0.192 0.1152 0.1152 0.0576 Total D1 0 105000 168000 100800 60480 60480 30240 525000 BV1 525000 420000 252000 151200 90720 30240 0 0 0 105000 168000 100800 PW 7 8 9 10 Taxes CFAT 0 -525000 51300 188700 27360 212640 52896 -337896 43244 326756 4377.6 235622.4 41404.8 323595.2 16.29% 135000 72000 139200 113800 11520 108960 ROR 39280 0 0 168250 11 12 13 14 Extra-S Year GI 0 0 P&S -800000 D rate 0 0.2 0.32 350000 15 16 1 2 3 4 OE 0 120000 120000 120000 120000 120000 120000 350000 350000 350000 350000 350000 CFBT -800000 230000 230000 230000 230000 230000 440000 D 0 160000 256000 153600 92160 92160 46080 800000 TI 0 70000 -26000 76400 137840 137840 183920 ROR 0.192 0.1152 0.1152 0.0576 Total Taxes CFAT 0 -800000 26600 203400 -9880 239880 29032 200968 52379.2 177620.8 52379.2 177620.8 69889.6 370110.4 16.76% 17 18 19 20 21 5 6 210000 PW 238201 22 23 Year 24 25 26 27 28 29 30 31 32 ATCF: Extra-S - Hi-Tone Extra-S Hi-Tone Extra - Hi 0 -800000 -525000 -275000 1 203400 188700 14700 2 239880 212640 27240 3 200968 -337896 538864 4 177621 326756 -149135 5 177621 235622 -58001.6 6 370110 323595 46515.2 AROR 17.99% Project Part (B) As an enginner in RedOak company, your department head asked you to perform an analysis of installing MAP/TOP in the manufacturing planning devision your company (MAP/TOP is a communications integration software system developed by Boeing). The entire system would be implemented and operated by one of two consultant groups: Hi Tone or Extra-S. The first cost (includes MAP/TOP software, hardware, implementation and training costs) that your company will agree to pay is still in question. The possible variation of the initial cost estimate P is included in the consultants' proposals below. (100% of P means use the whole amount of estimated P). Consultant Hi Tone Extra- First cost estimate P, $ -500,000 -800,000 Actual first cost ($) 1.05(-500,000) =-525,000 -800,000 AOC $/year - 150,000 -120,000 Salvage value, $ 125,000 210,000 Life of contract, years 3 6 Annual Revenue 390,000 350,000 The first cost of Hi-Tone is 105% of its P and the first cost of Extra-S is 100% of its P. Both system are depreciated based on 5-year MACRS. Hi-Tone is sold for $130,000 in year 4. Put in table the cash flow for both alternatives from year 0 to year Including CFBT, depreciation, depreciation recapture, taxable income, taxes, and ATCF using effective tax rate Te = 38%. The After tax MARR for your company is 8%. a- Find the after tax present worth for both alternatives by hand i.e. write down the equation of calculating PW of ATCF). Answer: b- Find the PW of ATCF for both alternative using NPV function, select the better alternative. Answer: - Use IRR function to find the after tax ROR of each alternative. Answer: d-Use ROR analysis for ATCF to selet the suitable alternative. Answer: B D E F G H 1 J K L M N D2 DR TI 1 2 3 4 0 0 0 Hi-Tone Year GI 0 0 1 390000 2 390000 3 390000 4 390000 5 390000 6 390000 5 6 0 OE 0 150000 150000 150000 150000 150000 150000 P&S CFBT -525000 -525000 240000 240000 -525000 -285000 130000 370000 240000 125000 365000 D rate 0 0.2 0.32 0.192 0.1152 0.1152 0.0576 Total D1 0 105000 168000 100800 60480 60480 30240 525000 BV1 525000 420000 252000 151200 90720 30240 0 0 0 105000 168000 100800 PW 7 8 9 10 Taxes CFAT 0 -525000 51300 188700 27360 212640 52896 -337896 43244 326756 4377.6 235622.4 41404.8 323595.2 16.29% 135000 72000 139200 113800 11520 108960 ROR 39280 0 0 168250 11 12 13 14 Extra-S Year GI 0 0 P&S -800000 D rate 0 0.2 0.32 350000 15 16 1 2 3 4 OE 0 120000 120000 120000 120000 120000 120000 350000 350000 350000 350000 350000 CFBT -800000 230000 230000 230000 230000 230000 440000 D 0 160000 256000 153600 92160 92160 46080 800000 TI 0 70000 -26000 76400 137840 137840 183920 ROR 0.192 0.1152 0.1152 0.0576 Total Taxes CFAT 0 -800000 26600 203400 -9880 239880 29032 200968 52379.2 177620.8 52379.2 177620.8 69889.6 370110.4 16.76% 17 18 19 20 21 5 6 210000 PW 238201 22 23 Year 24 25 26 27 28 29 30 31 32 ATCF: Extra-S - Hi-Tone Extra-S Hi-Tone Extra - Hi 0 -800000 -525000 -275000 1 203400 188700 14700 2 239880 212640 27240 3 200968 -337896 538864 4 177621 326756 -149135 5 177621 235622 -58001.6 6 370110 323595 46515.2 AROR 17.99%