You are the CFO of a business and have the opportunity to evaluate two different investment opportunities. Information related to these investments follows:

	Investment 1	Investment 2
Investment Cost	$ 800,000	$ 500,000
Salvage Value	$ 40,000	$ 50,000
Useful Life	8 years	15 years
Required Rate of Return	10%	10%
Sales	$ 450,000	$ 400,000
Variable Costs	$ 150,000	$ 175,000
Fixed Costs (excluding depreciation)	$ 100,000	$ 150,000
Tax Rate	35%	35%

Your company has a required rate of return of 10% for all new investments and is subject to a tax rate of 35%.

1. Determine the annual after tax cash flow for each investment. In addition, determine the after-tax cash flow for the salvage value if you assume that the actual market value of Investment #1 at the end of eight years is $50,000 and the actual market value of Investment #2 at the end of fifteen years is $40,000.
2. Prepare a schedule of expected cash flows for each investment. Note that all positive cash flows must be shown as positive numbers and all negative cash flows must be shown as negative numbers.
3. Calculate the Net Present Value for each investment using the NPV function in Excel.
4. Calculate the Internal Rate of Return for each investment using the IRR function in Excel. (Note your guess for the interest rate in the formula should be the required rate of return)
5. Recalculate the Net Present Value for INVESTMENT #1 ONLY but assume that the required/target rate of return is 6%, 12%, and 20%.

Investme Cost Salvage Value Useful Life (years) Investmral Investment $ 800,000 $ 500.000 $ 40,000 $ 55000 Annual Depreciation Required Rate of Return on investments Sales Variable Costs 9 Fhed Cosis lencuing Depression) Tax Rate $ $ $ 102 450,000 150.000 100.000 $ $ $ 400 000 175.000 53000 357 Income Statement: Sales Variable Costs Contribution Margin Fined Costs (encoding Depreviation) Depreciation Earnings Before Taxes TS Earnings Alter Taxes 23 Annual After Tax Cash Floy Earnings After The Depreciation Annual After Tas Cash Floy 60,000 40000 29 After-Tax Cash Flow For Salvage Value 3D Marke: Value of Art at the end of useful $ Book Value of Asset at the end of useful lite Gain (Loss) Tax on Gain (Loss) Cash from Sale of Asset Tal on Sale Net Cash from Sale of Asset Investment 1 Annual Cash Flows -> All pos tive cash flow must be shown as a partive number All negative cash flowa must be shown as a negative number. Year (date of investment) Year 1 Yeur 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Investment 2 Annual Cash Flows All postive cash flows must be shown as a pestive number All negative cash flow must be shown as a negative number ONS 15 Year 0 (date of investment) 18 Year 1 17 Year 2 Yea: 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 28 Year 13 Year 14 Year 15 Investment 1 Investment 2 Net Present Value Based on NPV only, which investment is better (Link to List Below)? Investment Choices: Select from this list: Investment 1 Investment 2 Investment 1 Investment 2 What interest rate (Link to list below)? Based on IRR only, which investment is better (Link to 7 List Below)? Investment Choices - Select from this list: Investment 1 Investment 2 Calculate NET PRESENT VALUE FOR INVESTMENT #1 ONLY Assuming the following Required Rates of Return 6% 12% 20% Net Present Value The LOWER the required interest rate the the Net Present Value (Link to List Below) 9 The HIGHER the required interest rate, the the Net Present Value (Link to List Below) Fill in the Blank -- Select from this list: higher lower