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5 Diltz Farms is considering investing in an automated egg-sorting system to increase production for international (web-based) sales of Dilte Farme products. The new system will cost $2204 including installation. It will be fully depreciated in 5 yrs.(straight-line) to zero and generate $188 after-tax gain at the end of the projected period (year 6). The initial working 8 captital will be $315 and will be $677 in year one and increase each year thereafter by 5 percent Assume that at year 0, there is no change in working capital Revenues generated from the 9 egg-sorter are expected to be 5878 in year one, and increase by five percent each year. Expenses are ten percent of revenues. Dilte Farms' cost of capital is 7.6% Uving the discounted cash-Bow analysis, should Dilts Farms invest in the machinery? What is the NPV of the egg-sorter project? Asume Tax rate as 35% 10 AL 14 Cost of the Asset 15 Life of the Asset in Years 16 Book Value of the Asset after 5 years 17 Depreciable Basis 18 Yearly depreciation 19 After tax Salvage Value in year 6 20 Cost of capital 21 Tax rate 22 23 Initial Investment 24 Salvage Value 25 Working capital 26 Change in Wk Cap 27 Revenues 28 Expenses 29 Depreciation 30 Pretax profit 31 Tax (35%) 32 Profit after tax 34 CF from capital investments 35 CF from working capital 36 CF from operations 37 Total cash flows 38 Discount factor 39 PV of cash flow 40 41 Year: 42 43 Net present value using Discount factor IRR using formula Cash Flow Identify, the values from the questions for cells C14, C15, C16, C17, C19, C20 and C21. Depreciable Basis-Cost of the Asset-Book Value at the end of its life Sometimes, if we do not have information about Book Value of an asset at the end of its useful li we might use Salvage Value in those cases to find depreciation 3 4 If you directly use NPV formula, you will not get points. If you use GoalSeek for IRR, you will not get points. In cell C23 enter: -C In cell 124 enter: C In cell C25 enter the In cell D25 enter the In cell E25 enter:- In cell C26 enter 0 In cell D26 enter: -1 In cell D27 enter the In cell E27 enter: In cell D28 enter: - In cell E28 enter: In cell D29 enter: In cell D30 enter:- In cell D31 enter:- In cell D32 enter: In cell C34 enter:- In cell C35 enter- In cell 135 enter:- In cell D36 enter:- In cell C37 enter:- In cell C38 enter:- In cell C19 enter In cell C23 enter: =C14 In cell 124 enter: =C19. In cell C25 enter the initial working capital from the problem In cell D25 enter the working capital for year 1 from the problem In cell E25 enter : =1.05*D25 and then drag it till H25 In cell C26 enter 0 In cell D26 enter: =D25-C25 and then drag it till 126 In cell D27 enter the revenue for year 1 from the problem In cell E27 enter: -D27*1.05 and then drag it till H27 In cell D28 enter: = D27*0.1 In cell E28 enter: =D28*1.05 and then drag it till H28 In cell D29 enter: =$C$18 and then drag it till H29 In cell D30 enter: -D27-D28-D29 and then drag it till H30 In cell D31 enter: =$C$21*D30 and then drag it till H31 In cell D32 enter: =D30-D31 and then drag it till H32 In cell C34 enter: =-C23 In cell C35 enter: =-C26 and drag it till H35 In cell 135 enter: =-126+124 In cell D36 enter: -D32+D29 and drag it till H36 In cell C37 enter: =sum(C34,C35,C36) and drag it till 137 In cell C38 enter: =1/(1+$C$20)^C22 and then drag it till 138 In cell C39 enter: -C37*C38 and then drag it till 139 In cell C42 enter: =sum(C39:139) In cell C43 find IRR using only the formula (only use the formula but do not use GoalSeek function. You learnt those in Chapter 9 Spreadsheet Mastery). Hint: Use IRR formula for Total Cash Flows