workout.
The cash flows associated with this recreation center endeavor are as follow:
CF 0
CF 1
CF 2
CF 3
CF 4
CF 5
-1,280,000
250,000
280,000
480,000
350,000
280,000
The company currently uses a 5.5% WACC for analyzing all projects.
The other project under consideration is the acquisition of a new IT system. It will cost slightly less than the recreation facility, only $1,225,000.
CF 0
CF 1
CF 2
CF 3
CF 4
CF 5
-1,225,000
275,000
675,000
275,000
275,000
275,000
EVAL III STUDENT TEMPLATE FA 2020 02 Q . Rechercher dans la fel Accueil Insertion Dessin Mise en page Formules Donnees Revision Affichage _+ Partager Calibri (Corps) * 11 A Standard Inserer E Supprimer Coller G I S E % 000 .00 Mise en forme Mettre sous Styles de Trier et Rechercher et conditionnelle forme de tableau cellule iMise en forme filtrer selectionner M91 X V fx B D E G H K M N P R S New system cost including shipping and installation 1 225 000 Estimate increase in revenue 275 000 675 000 275 000 275 000 275 000 Annual fixed costs of operating new system 20 000 Depreciation MACRS 3 yr 0,3333 0,4445 0,1481 0,0741 Annual NWC amount 12 250 Salvage value 36 750 Salvage value percent of new machine cost 0,030 Economic life, in years MTR 0,3500 WACC 0,0550 Cell for "2" Cell for "1" Cell for "-1" CF1 2 3 5 CFO CF2 CE3 CF4 CF5 POINTS POINTS POSSIBLE EARNED Revenues Costs NWC Changes in NWC Depreciation calculation 1 1 0 CFO CF1 2 CF2 CE3 CF4 CF5 Initial machine investment NWC - H Incremental revenues Incremental costs Depreciation Pre-tax operating income 10 10 Taxes AT operating income 10 10 Depreciation add-back Operating cash flow 10 10 45 46 Recoverv NWC INVESTMENT ANALYSIS NPV PROFILES GRADE SHEET + 100 %EVAL III STUDENT TEMPLATE FA 2020 02 Q . Rechercher dans la fel Accueil Insertion Dessin Mise en page Formules Donnees Revision Affichage + Partager Calibri (Corps) * 11 Standard Inserer E Supprimer Coller G I S % 000 .00 Mise en forme Mettre sous Styles de Trier et Rechercher et conditionnelle forme de tableau cellule Li Mise en forme filtrer selectionner 123 X V fx B D E G H K M N P Q R 33 Initial machine investment NWC Incremental revenues Incremental costs Depreciation Pre-tax operating income 10 10 Taxes AT operating income 10 10 Depreciation add-back Operating cash flow 10 10 Recovery NWC AT sale of machine 10 10 Total cash flow 10 10 CUMULATIVE TOTAL CASH FLOW DISCOUNTED CASH FLOW CUMULATIVE DISCOUNTED CASH FLOW NNN NPV IRR MIRR PB DPB PI NNNNNN NNNNNN NNN Your assistant would like to make the presentation to the firm about this project, and wants to focus on IRR and PB because they are the easiest to calculate. He believes that the projects with a PB of two years or longer should be rejected What should be your response to his approach, in general? Based on the calculations you performed, what should be the recommendation to the firm, and why? 30 80 BONUS INVESTMENT ANALYSIS NPV PROFILES GRADE SHEET + Pret 100 %
