The worksheet details a proposal for a new piece of equipment for your company to replace an older machine. You are the financial manager that will explain the proposal to your senior management. YOU WILL NEED TO COMPLETE THE EXCEL WORKSHEET: 1) INITIAL CASH OUTLAY 2) OPERATING CASH FLOW (OCF), 3) TERMINAL CASH FLOWS IF ANY AND THEN POPULATE THE PROJECT CASH FLOWS TO CALCULATE TH NPV AND THE IRR OF THE PROJECT.

OPERATING COMPARISON ITEM NEW EQUIPMENT COST INSTALLATION COST REVENUE OPERATING EXPENSES NETWORKING CAPITAL TAX RATE COST OF CAPITAL NEW $225,000 $30,000 $400,000 $240,000 $50,000 30% 15% CURRENT (1) (1) $310,000 $232,500 $30,000 INCLUDE IN YEAR O CASH FLOW 30% 15% NOTE (1): OLD MACHINE HAS BEEN FULLY DEPRECIATED. MARGIN 0.6 INVESTMENT COMPARISON 0.75 YEAR DEPRECIABLE BASIS MARKET VALUE OF OLD MACHINE BOOK VALUE OF OLD MACHINE GAIN ON SALE OF OLD MACHINE TAX ON GAIN NET PROCEEDS FROM SALE OF OLD MA 0 1 2 3 4 5 6 $255,000 COST OF NEW EQUIPMENT AND ANY INSTALLATION COSTS - INCLUDE IN YEAR O CASH FI $8,000 $0 $8,000 $2,400 $5,600 INCLUDE IN YEAR O CASH FLOW 20% $51,000 32% $81,600 19% $48,450 12% $30,600 11% $28,050 MACRS ALLOWANCE DEPRECIATION ON NEW MACHINE SALVAGE VALUE OF NEW MACHINE BOOK VALUE OF NEW MACHINE GAIN ON SALE OF NEW MACHINE TAX ON GAIN PROCEEDS FROM SALE OF NEW MACHINE $204,000 $122,400 $73,950 $43,350 $15,300 6% $15,300 $25,000 ASSUMI $0 $25,000 PRETAX $7,500 $17,500 AFTERT OCF ANALYSIS (Operating Cash Flow) 2 3 5 6 YEAR 0 INCREMENTAL SALES INCREMENTAL EXPENSES INCREMENTAL DEPRECIATION INCREMENTAL TAX EXPENSES INCREMENTAL NET INCOME INCREMENTAL DEPRECIATION (non-cash expense) INCREMENTAL OCF 1 $90,000 $7,500 $51,000 $9,450 $22,050 $51,000 $73,050 $0 $0 $0 $0 SO ADD BA $0 $0 0 $0 $0 $O (2) THE TAX SHIELD PROVIDED BY NON-CASH DEPRECIATION EXPENSE IS INCLUDED IN THE INCREMENTAL OCF PROJECT CASH FLOW YEAR 0 1 2 3 4 5 6 ? $73,050 8 $0 $0 $0 $0 INITIAL OUTLAY OCF TERMINAL CASH FLOW PROJECT CASH FLOW INCLUD $O COMPLI SO INCLUD $0 $0 $73,050 $0 $0 $0 $0 DECISION NPV USE THE EXCEL FORMULAS FOR NPV AND IRR OR USE YOUR FINANCIAL CALCULATOR IRR 2 ? ACCEPT OR REJECT THE PROJECT? Question 6 4 pts What are the Net Present Value (NPV) and IRR (IRR) percentage of the project? Please round your answers to whole numbers - for example $10,000 and 10%. NPV = $18,155 and IRR = 17.4% = O NPV = $33,178 and = IRR 23.0% O NPV = $32,555 and IRR = 19.55% = O NPV = 0 and IRR = 15% Question 7 4 pts Based on the calculations and analysis above, management should REJECT the proposal. True False