Compute the annual rate of return. 2 b) Prepare a table of the net annual cash flow and cumulative net cash flow. (Hint: Don't forget about depreciation! See M13, Discussion Problem 1) Net Annual Cumulative Cash Flow Net Cash Flow Year 2 Compute the payback period. (Again, refer to M13 Discussion Problem 11) d) Compute the NPV using the discount rate of 15% and the NPV Excel formula. You should list out your inputs in the provided spaces. Present value of cash inflows 2 Present value of cash outflows Net present value 1 Ir sher proposal acceptable using this discount rate? Respond Yer or No. 2 Compare results from Project 2 above to those of Project 1 by making an "X" in the box of the Project that is more appealing for each item below. Note for the NPV comparison, use the results from Project 1 using the 15% discount rate, letter (c) Annual Rate of Return Net Present Value Cash Payback Project! Project 2 A company that manufactures bicycles has an opportunity to begin maufacturing a new higher-end model, which has additional features from the models they currently make. These features would require some new equipment to be purchsed. Because of the risk level involved in taking on a new product, management is trying to determine whether the returns will justify the risk. The individuals within the top tier of management that are evaluating the project, have determined a 15% discount rate is appropriate for evaluation purposes. Management has asked you to prepare an anlaysis of the project giving the following information and assumptions: 1) The new equipment will have a cost of $358,000, a salvage value of $10,000 and a 10-year useful life. Straight line depreciation will be used. 2) The projected revenues, costs, and results for each of the 10 years of this project are as follows: $315,000 Sales Less: Manufacturing costs Depreciation Shipping costs Administrative costs Income before income taxes Income tax expense Net income $190,000 34,800 17,000 15,000 256,800 58,200 23,280 $34,920 Instructions: Using the template below, a) compute the annual rate of retum. b) compute the payback period, c) compute the NPV using the determined 15% discount rate. In this proposal axvepaalde ting this discount rate? d) compute the NPV using a 12% discount rate so that Management has a comparison for analysis Dit proposal aceptable in this discontrate In order to get full points for this project: Cells in red require input of TEXT OR VALUES. Cells in green on the template should be a FORMULA. Compute the annual rate of retum. % 2 b) Compute the payback period. Note that you will need to arrive at the net annual cash flow FIRST. 1 c) Compute the NPV using the discount rate of 15% and the PV Excel fomula. You should list out your inputs in the provided spaces. Present value of cash inflows: Present value of cash outflows Net present value La this proposal acceptatie wsing this discount rate? Respond Yes or No. 2 d) Compute the NPV using the discount rate of 12% and the PV Excel formula where required. You should list out your inputs in the provided spaces. Present value of cash inflows 3 Present value of cash outflows Net present value Le this proposal acceptable wsing this discount rate? Respond Yes or No. 2
