To calculate the Net Present Value (NPV) and Modified Internal Rate of Return (MIRR) for the project being considered by Metro Industries, Explanation: we need to analyze the cash flows over the 4-year period. Let's break down the steps and calculations: Initial Investment Outlay - Cost of new asset: $1,200,000 - Sale of old asset: -$180,000 (cash inflow) - Tax on sale of old asset: 40% of the gain over book value (Gain = Sale price - Book value) - Increase in working capital: $50,000 2. Operating Cash Flows (Years 1-4) - Incremental Sales: 30,000 units \times $20/unit - Incremental Variable Costs: 30,000 units \times $12/unit - Incremental Fixed Costs: $90,000 - Depreciation (MACRS 3-year): To be calculated - Tax Savings from Depreciation: Depreciation \times Tax rate - Operating Income: (Incremental Sales - Incremental Costs - Depreciation) - Tax on Operating Income: 40% of Operating Income - Net Operating Cash Flow: Operating Income - Tax + Tax Savings from Depreciation 3. Terminal Year Cash Flows (Year 4) - Salvage value of new asset: $200,000 - Recovery of working capital: $50,000 4. MACRS Depreciation - The MACRS 3-year schedule is 33%, 45%, 15%, and 7% for each year, respectively. 5. Net Present Value (NPV) - Calculate the present value of each year's cash flow discounted at the company's discount rate (10%). 6. Modified Internal Rate of Return (MIRR) - Calculate the terminal value of cash inflows and the present value of cash outflows, then solve for the interest rate that equates these two values. Let's perform these calculations. We'll start with the initial investment outlay and operating cash flows. The initial investment outlay and operating cash flows for the project are as follows: - Initial Investment Outlay: $1,082,000 - Operating Cash Flows over 4 Years: - Year 1: $248,400 - Year 2: $306,000 - Year 3: $162,000 - Year 4: $123,600 - Terminal Year Cash Flows (Year 4): $250,000 (includes the salvage value and recovery of working capital) Explanation: The calculated Net Present Value (NPV) of the project, using a discount rate of 10%, is approximately -$226,402.43. This negative NPV suggests that the project might not be financially viable as it is expected to decrease the value of the company. Next, let's calculate the Modified Internal Rate of Return (MIRR). This requires finding the terminal value of cash inflows and the present value of cash outflows, and then solving for the interest rate that equates these two values. It seems there was an issue with the method I used for the calculation. I will use an alternative approach to calculate the terminal value of cash inflows and then proceed to calculate the Modified Internal Rate of Return (MIRR). Let's try that. It appears I made an error by referencing a variable that wasn't previously defined. I need to correct this and then calculate the Modified Internal Rate of Return (MIRR) again. Let's proceed with the correct calculations. Answer The Modified Internal Rate of Return (MIRR) for the project is approximately 3.73%. This rate is lower than the company's discount rate of 10%, indicating that the project may not be an attractive investment based on these calculations. HOW DID GET 1,082,000 FOR INITIAL INVESTMENT

PROBLEM FIVE: (20%) The following data pertain to a 4-year project being considered by Metro Industries: The - A depreciable asset that costs $1,200,000 will be acquired on January 4 years, asset, which is expected to have a $200,000 market value at the end Recovery qualifies as 3-year property under the Modified Accelerated Cost Recover. System (MACRS). y The new asset will replace an existing asset that has a book value of $150,000 and can be sold on the same January 1 for $180,000. MV - LThe project is expected to provide added annual sales of 30,000 units at $20. Additional cash operating costs are: variable, $12 per unit; fixed, $90,000 per year. A $50,000 working capital investment that is fully recoverable at the end of the fourth year is required. Metro is subject to a 40% income tax rate. a. The company uses the net present value method to analyze investments. Calculate the NPV? h Calculate the MIRR