question 2

12: Risk and Capital Budgeting will be depreciated using MACRS with a fe of five years. At the end of the project, it is estimated that the equipment could be sold for The marketing department estimates that the state will grant the ng price of s125 though it may get lower is for competitive bidding. The engineering department estimates that the project need an initial net and the capital investment of $115,000. The firm's WACC is 12%, marginal tax rate is 35 relevant information in this a. Set up a worksheet containing all of the shows the total problem, and operating cash flow statement that outlay. annual cash flows for each year, including the initial b. Calculate the payback period, discounted payback period, NPV, IRR and MIRR of this project. Is the project acceptable? c. If the state decides to open the project for competitive bidding, what is the lowest bid price that you can enter without reducing shareholder wealth? Explain why your answer is correct. d. Perform a Monte Carlo simulation with 1,000 trials to determine the expected NPV and the standard deviation of the expected NPV. The uncertain variables and their probability distributions are given below The quantity of rock salt sold should be simulated for each year independently of the others (i.e., it is five separate variables) Variable Distribution Triangular with a minimum of 25,000, Tons of rock salt in most likely of 40,000, and maximum each year of 50,000 Normal with a mean of $95 and a Variable cost per ton standard deviation of S5. Salvage value o Uniform with a minimum of $70,000 equipment and a maximum of $200,000. e. Create a histogram showing the probability distribution of NPV f. Using the output of the simulation, what is the probability that the NPV will be less than or equal to zero? Would you suggest that the project be accepted? 12: Risk and Capital Budgeting will be depreciated using MACRS with a fe of five years. At the end of the project, it is estimated that the equipment could be sold for The marketing department estimates that the state will grant the ng price of s125 though it may get lower is for competitive bidding. The engineering department estimates that the project need an initial net and the capital investment of $115,000. The firm's WACC is 12%, marginal tax rate is 35 relevant information in this a. Set up a worksheet containing all of the shows the total problem, and operating cash flow statement that outlay. annual cash flows for each year, including the initial b. Calculate the payback period, discounted payback period, NPV, IRR and MIRR of this project. Is the project acceptable? c. If the state decides to open the project for competitive bidding, what is the lowest bid price that you can enter without reducing shareholder wealth? Explain why your answer is correct. d. Perform a Monte Carlo simulation with 1,000 trials to determine the expected NPV and the standard deviation of the expected NPV. The uncertain variables and their probability distributions are given below The quantity of rock salt sold should be simulated for each year independently of the others (i.e., it is five separate variables) Variable Distribution Triangular with a minimum of 25,000, Tons of rock salt in most likely of 40,000, and maximum each year of 50,000 Normal with a mean of $95 and a Variable cost per ton standard deviation of S5. Salvage value o Uniform with a minimum of $70,000 equipment and a maximum of $200,000. e. Create a histogram showing the probability distribution of NPV f. Using the output of the simulation, what is the probability that the NPV will be less than or equal to zero? Would you suggest that the project be accepted