(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 Criticaf Thinking Skilis 1) Life Period of the Equipment 4 years 2) New equipment cost 3) Equipment ship & install cost 4) Related start up cost 5) Inventory increase 6) Accounts Payable increase 7) Equip. Salvage Value Estimated 15,000 13) Cost of Capital (WACC) End of Year (fully depreciated ) 8) Sales for first year (1) (200,000) 9) Sales increase per year $(35,000) 10) Operating cost $ $ 200,000 s (120,000) (60,000) 10% (5,000) 25,000 5,000 (60 Percent of Sales) 11) Depreciation (Straight Line/YR 12) Tax rate ESTIMATING Initial Outlay (Cash Flow, CFo, T- CFO CF1 CF2 CF3 CF4 1) Equipment cost 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1+2+3) 4) Net Working Capital Inventory Inc. Acct. Payable Inc (20.9991SS Total Initial Oulay Operating Cost EBIT Taxes Net Income (LOSS) xxxxxx XXxxX TAX SHIELD DUE TO LOSS Add back Depreciation Total Operating Cash Flow xXxXX XXXXX S20,000 1) Release of Working Capital 2) Salvage value (after tax) Total Payback- NPV COST of CAPITAL (WACC) or DISCOUNT RATE OF THE PROJECT = 10% Q#1 Would you accept the project based on NPV, IRR? Would you accept the project based on Payback rule if project cut-off period is 3 years? QN2 SENSITIVITY and SCENARIO ANALYIs. Capital Budgeting (Investment) Decisions Estimate NPV. IRR and Payback Period of the project if Marginal Corporate Tax is reduoed to20%. Would you acoapt or eeject the propor? Assume Straight-Line Depreciation. Estimate NPV, IRR and Payback Period of the project if Equipment is fully deprecated in first year and tax rate is reduced to 20%. Would you accept or reject the project? would you choose? Why? Q#3 O#4 a#s How would you explain to your CEO what NPV means? What are advantages and disadvantages of using only Payback method? What are advantages and disadvantages of using NPV versus IRR