• Using the required rate of return the project given. To evaluate, set up the cash flow estimation in the excel spreadsheet posted. Your company has raised $5,000,000 to invest in an expansion project. All 4 projects will have to begin at the same time, so evaluate the costs of the projects to check for mutually exclusiveness of the projects. Depending on the costs and returns, it is possible to invest in multiple projects. Each project will have its pros and cons, and each project to choose from will have percentages of costs and returns for Expected and Bad Economies. You will need the cash flows for each economy and do a weighted average. Set up excel using formulas.
• This project is over the course of 4 years. You will need an investment of $2 million in year 0, $1 million of it in inventory for year 1 production. Depreciation is a straight line over the 4 years, and the salvage value at the end of the 4 years will be $400,000. Total inventory produced will be 40,000 units, and sales are expected to be 8000 in the 1st 2 years, and 7000 in the 3rd and 4th year, with the remainder in the 4th. Prices are expected to be set at $750 for the 4 years. There is a 50% chance the new product will not receive market share by the end of the 1st year, and if that occurs, sales will only be 10% of projections in the 1st year and the price will 20% less, and the remainder of the inventory will have to be scrapped. The project will be abandoned before production starts on the second year of inventory. The machinery would be resold at the book value at the end of the 1st year. The fixed cost is $400,000 per year and the variable cost are 35% of revenue. The tax rate is at 40%.
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