Stauffer Company has an opportunity to manufacture and sell a new product for a fiveyear 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:

Sales $

Variable expenses $

Fixed outofpocket operating costs $

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.

In the Excel template, using Goal Seek, calculate this investment$$s internal rate of return. If the company$$s hurdle rate is would it be likely to accept or reject the investment? Why?

What is the project$$s net present value when using a discount rate of

If the company wants to achieve an return on this investment, what is the maximum amount that it can spend each year on fixed outofpocket operating costs? Use Goal Seek to compute your answer. Note: The fixed

outofpocket operating costs remain constant for all five years, therefore modifying cell C automatically updates cells D through G 

 

If the investment in working capital increased from $ to $ would you expect the internal rate of return to increase, decrease, or stay the same? No computations are necessary to answer this question.

Refer to the original data. Using Goal Seek, calculate the internal rate of return if the investment in working capital increases from $ to $ Note: Be sure to return the fixed outofpocket operating costs to the original value of $