Question

**Problem # 1**

Consider the following for an 8 year special revenue generating project. (this is the base case)

- Sales revenue $250,000 in the first year and will increase by 20% per year for the next 4 years. In year 6 the revenue will decrease by 15% a year through year 8. There is no expected cash flow after 8 years as this venture has a constrained timeline and no expected value after 8 years.
- Costs of goods sold will be 70% of sales.
- Advertising and administrative expenses will be fixed at $10,000 per year.
- Equipment will be purchased for $300,000 and will be depreciated using the 7 year MACRS asset class depreciation schedule. Salvage value is expected to be $25,000
- Working capital investment in year 0 is estimated to be $20,000 and is expected to be recovered in the final year of the project.

Cost of Capital is 8% and Tax Rate is 30%.

**A: Base Case scenario**

- Calculate the project’s NPV
- What is your recommendation?

**B: Pessimistic View**

- What is the impact on NPV based on pessimistic assumptions
(consider both at the same time):
- If Sales Revenue in the first year was only $150,000 and only increase by 10% for the next 4 years and then decline by 20% a year through year 8?
- If Cost of Goods Sold were 75% of sales?

**Problem #2**

Company needs to decide between two machines.

Machine A costs 10,000 and produce after tax cash flows of 3,000 per year for 5 years. No salvage.

Machine B costs 18,000 and produce after tax cash flows of 2,800 per year for 10 years. No salvage.

Discount rate is 8%

Which machine would you recommend?

**Problem #3**

Company needs to decide between two machines.

Machine C costs 10,000 and produce after tax cash flows of 4,000 per year for 3 years. No salvage.

Machine D costs 14,000 and produce after tax cash flows of 3,000 per year for 7 years. No salvage.

Discount rate is 8%

Which machine would you recommend?

**Problem #4**

Calculate NPV, Payback, Discounted Payback, IRR and Modified IRR for the following project

Initial Investment: -100,000

Annual project cash flow 22,000 for 6 years

Cost of capital is 6%

Answer #1

You have asked 4 unrelated questions in a single post. Further your q - 1 has multiple sub parts. I will address all the sub parts of the first question. Please post the balance questions separately, one by one.

Q - 1

Part A: Base Case Scenario

Please see the table below. Please be guided by the second column titled “Linkage” to understand the mathematics. The last row highlighted in yellow is your answer. Figures in parenthesis, if any, mean negative values. All financials are in $. Adjacent cells in blue contain the formula in excel I have used to get the final output.

Project's NPV is $ 172,720

Recommendation: Since the project has positive NPV, this project should be accepted and undertaken by the company.

Part - B: Pessimistic View

Impact on NPV: NPV turns negative.

Impact on recommendation: The project is no longer viable and hence should be rejected.

Project P costs $15,000 and is expected to produce benefits
(cash flows) of $4,500 per year for five years. Project Q costs
$37,500 and is expected to produce cash flows of $11,100 per year
for five years. Calculate each project’s (a) net present value
(NPV), (b) internal rate of return (IRR), and (c) mod- ified
internal rate of return (MIRR). The firm’s required rate of return
is 14 percent. Compute the (a) NPV, (b) IRR, (c) MIRR,
and (d) discounted payback...

PROBLEM 2
Winston Clinic is evaluating a project that costs $52,125 and
has expected net cash flows of $12,000 per
year for eight years. The first inflow occurs one year after the
cost outflow, and the project has a cost of
capital of 12 percent.
a. What is the project's payback?
b. What is the project's NPV? Its IRR?
c. Is the project financially acceptable? Explain your
answer.

1.Project K costs $57,890.94, its expected cash inflows are
$14,000 per year for 8 years, and its WACC is 9%. What is the
project's IRR? Round your answer to two decimal places.
2.Project K costs $35,000, its expected cash inflows are $10,000
per year for 8 years, and its WACC is 9%. What is the project's
discounted payback? Round your answer to two decimal places.
3.Project K costs $45,000, its expected cash inflows are $11,000
per year for 10 years,...

A capital budgeting project is being considered for
implementation. The asset is a 3-year MACRS class asset with a
four-year project life. The cost of the asset, and the first year
revenue and operating cost projections are provided in the table
below:
Price of Asset
$280,000.00
Freight / Installation
$20,000.00
Depreciation Schedule:
Year 1
$99,000.00
Year 2
$135,000.00
Year 3
$45,000.00
Year 4
$21,000.00
Salvage Value
$30,000.00
Increase in NWC
$25,000.00
Revenues from project
$260,000.00
Operating Costs (excluding depreciation)
$115,000.00...

NPV and IRR Benson Designs has prepared the
following estimates for a long-term project it is considering. The
initial investment is $26,940, and the project is expected to
yield after-tax cash inflows of $3,000 per year for 14 years. The
firm has a cost of capital of 8%.
a. Determine the net present value (NPV) for the project.
b. Determine the internal rate of return (IRR) for the
project.
c. Would you recommend that the firm accept or reject the...

Project S costs $16,000 and is expected to produce cash flows of
$5,000 per year for 6 years. What is the discounted payback period
for this project if the cost of capital is 21%?
A) 3.92 years
B) 5.61 years
C) 4.86 years
D) 5.85 years
What is the NPV for this project is the cost capital is 21%?
A) $157.65
B) -$110.23
C) $199.36
D) $223.08
What is the NPV for this project if the cost of capital is...

(a) Develop
proforma Project Income Statement Using Excel Spreadsheet
(b) Compute Net Project Cash
flows, NPV, IRR and PayBack Period
(c) Develop Problem-Solving
and Critical Thinking Skills
1) Life Period of the
Equipment = 4 years
8) Sales for first year (1)
$ 200,000
2) New equipment cost
$ (200,000)
9) Sales increase per year
5%
3) Equipment ship &
install cost
$ (35,000)
10) Operating cost:
$ (120,000)
4) Related start up cost
$ (5,000)
(60 Percent of...

1. Learning Objectives
(a) Develop proforma Project Income
Statement Using Excel Spreadsheet
(b) Compute Net Project Cash
flows, NPV, IRR and PayBack Period
1) Life Period of the Equipment = 4 years
8) Sales for first year (1)
$ 200,000
2) New equipment cost
$ (200,000)
9) Sales increase per year
4%
3) Equipment ship & install cost
$ (25,000)
10) Operating cost:
$ (120,000)
4) Related start up cost
$ (5,000)
(60 Percent of Sales)
-60%
5) Inventory increase
$ 25,000
11) Depreciation (Straight Line)/YR
$ (60,000)
6) Accounts Payable...

1. Learning Objectives
(a) Develop proforma Project Income
Statement Using Excel Spreadsheet
(b) Compute Net Project Cash
flows, NPV, IRR and PayBack Period
1) Life Period of the Equipment = 4 years
8) Sales for first year (1)
$ 200,000
2) New equipment cost
$ (200,000)
9) Sales increase per year
4%
3) Equipment ship & install cost
$ (25,000)
10) Operating cost:
$ (120,000)
4) Related start up cost
$ (5,000)
(60 Percent of Sales)
-60%
5) Inventory increase
$ 25,000
11) Depreciation (Straight Line)/YR
$ (60,000)
6) Accounts Payable...

1. Learning Objectives
(a) Develop proforma Project Income
Statement Using Excel Spreadsheet
(b) Compute Net Project Cash
flows, NPV, IRR and PayBack Period
1) Life Period of the Equipment = 4 years
8) Sales for first year (1)
$ 200,000
2) New equipment cost
$ (200,000)
9) Sales increase per year
4%
3) Equipment ship & install cost
$ (25,000)
10) Operating cost:
$ (120,000)
4) Related start up cost
$ (5,000)
(60 Percent of Sales)
-60%
5) Inventory increase
$ 25,000
11) Depreciation (Straight Line)/YR
$ (60,000)
6) Accounts Payable...

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