Calculate the followings

Q#1 Would you accept the project based on VPN, TIR? Explain.

Q#2 The Tax Reform Act of 2017 allows equipment expenses to be depreciated in year #1

A) Estimate the VAN, the IRR and the Recovery Period of the project.

B) Estimate the NPV, the IRR, and the payback period of the project if the equipment is fully depreciated in the first year and the corporate marginal tax is reduced to 20%.

C) As a shareholder of the company, would you prefer (a) or (b)? Because?

Q# 3 How would you explain to your CEO (in business terms) what VPN means?

Q#4 What are the advantages and disadvantages of using NPV versus IRR?

1) Equipment Life Period = 4 years					8) First year sales (1)			$ 200,000
2) Cost of new equipment			$ (200,000)		9) Sales increase per year			5%
3) Cost of shipment and installation of the equipment			$ (35,000)		10) Cost of operation:			$ (120,000)
4) Related initial cost			$ (5,000)		(as a percentage of sales in year 1)			-60%
5) Inventory increase			$ 25,000		11) Depreciation (Straight Line)/YEAR			$ (60,000)
6) Increase in Accounts Payable			$ 5,000		12) Tax rate			35%
7) Equip. after tax salvage value			$ 15,000		13) WACC			10%
CASH FLOW ESTIMATION AND CAPITAL BUDGETING DECISION MAKING
Year			0	1	2	3	4
Investments:
1) Cost of equipment
2) Shipping and installation cost
3) Start-up costs
Total base cost (1+2+3)
4) Net working capital
Total Initial Disbursement			xxxx
Operations:
Revenue
Operating cost
Depreciation
EBIT
Taxes
Net Income
add depreciation
Total Operating Cash Flow				XXXXX	XXXXX	XXXXX	XXXXX
Terminal:
1) Change in net WC				ps	ps	ps	$ 20,000
2) Salvage value (after taxes)							$ 15,000
Total							$ 35,000
Project Net Cash Flows			ps	ps	ps	ps	ps
VAN =			TIR =			Refund =

Answer rating: 100% (QA)

SOLUTION Q1 Would you accept the project based on VPN TIR Explain Yes I would accept the project based on VPN and TIR analysis VPN Value of Present Ne... View the full answer