Assignment Learning Objectives:

(a) Develop a proforma project income statement using an Excel spreadsheet

(b) Compute net project cash flows, NPV, IRR and Payback period

(c) Perform sensitivity and scenario analyses

(d) Develop problem-solving and critical thinking skills

Assignment Instructions:

There are 3 parts to this assignment, which combines using Excel to perform calculations and answering the eight questions on the "Additional Questions" tab. The use of formulas and cell references (rather than hard typing in numbers) should be used in all cases where they can. To guide you, the cells shaded gray are where formulas, numerical inputs or calcuations are needed in order to complete the assignment.

Your grade for this assignment will be determined by a combination of the correctness of your financial math, good use of Excel functionality and spreadsheet formatting, and the completeness of your answers to the questions.

In this assignment, you are evaluating a potential capital investment project that has a 4 year life. The financial details are as follows:

1) Useful life of the equipment (years)4

2) New equipment cost $ 240,000.00

5) Inventory increase $ 25,000

6) Accounts payable increase $ 5,000

7) Equipment salvage value (end of life) $ 15,000

8) Projected sales for year 1 $ 200,000

9) Projected sales growth per year

Low Case2%

Base Case5%

High Case8%

10) Operating cost (as a % of sales)60%

11) Depreciation (straight line) per year

12) Corporate marginal tax rate (T)21%

13) Cost of capital or discount rate (r)10%