Sacco Company has an opportunity to manufacture and sell a new product for a five-year period. The company estimated the following costs and revenues for the new product Cost of new equipment Initial working capital required Overhaul of the equipment after three years Salvage value of the equipment after five years Annual revenues and costs: $420,000 $105,000 $ 50,000 $ 39,000 Sales Variable expenses Fixed out-of-pocket operating costs $850,000 $500,000 $197,000 When the project concludes in five years the working capital will be released for investment elsewhere in the company Click here to download the Excel template, which you will use to answer the questions that follow. Click here for a brief tutorial on Goal Seek in Excel Required: 1 One method for computing the Internal rate of return relies on computing the factor of the internal rate of return as shown below Factor of the internal rate Investment required of return Annual net cash in low Con this equation be used to calculate the internal rate of return for Sacco Company? Why? Complete this question by entering your answers in the tabs below. Reg LA Res 15 Which of the following statements is true with respect to this equation? O can be used to call the al fate of return in this instance became the net cash infows are the same every year Of cannot be used to calculate the internal rate of retum in this instance because the net cash infos not the same every year Blue cells can be modified Dacount rate 0.0% 2 3 4 5 $ 5 Now (420,000) (80,000) $ 150,000) Purchase of equipment Investment in working capital Overhaul of equipment Salvace value of the equipment Working capital released Sales 2 Variable expenses 3 Fixed out-of-pocket operating costs Total cash flow (a) 5 Discount factorib 5 Present value of cash flow (a) (b) Net present value (SUM 816:616) $ 30,000 $ 80,000 850,000 $ 850,000 (500,000) S (S00,000) (200,000) S (200,000) 150,000 260,000 1.000 1.000 150,000 $ 260,000 $ 850,000 $ 850,000 $ 850,000 $ 500,000) S (500.000) (500,000) $ 200,000) $ (200,000) $ (200,000) 1500,000) $ 150,000 $ 150,000 100,000 1.000 1.000 1.000 1.000 (500,000) 150,000 150,000 $ 100,000S 310,000 S S S Req 1A Reg 1B Which of the following statements is true with respect to this equation? Oit can be used to calculate the internal rate of return in this instance because the net cash inflows are the same every year. Oit cannot be used to calculate the internal rate of return in this instance because the net cash inflows are not the same every year. Req 1B Req 1A Reg 1B 1b. If this equation cannot be used to calculate the internal rate of return explain why Because the net cash inflows are the same every year, Because the net cash inflows are not the same every year
