Basic Net Present Value Analysis Jonathan Butler, process engineer, knows that the acceptance of a new...
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Basic Net Present Value Analysis Jonathan Butler, process engineer, knows that the acceptance of a new process design will depend on its economic feasibility. The new process is designed to improve environmental performance. On the negative side, the process design requires new equipment and an infusion of working capital. The equipment will cost $1,100,000, and its cash operating expenses will total $280,000 per year. The equipment will last for 7 years but will need a major overhaul costing $110,000 at the end of the fifth year. At the end of 7 years, the equipment will be sold for $96,000. An increase in working capital totaling $110,000 will also be needed at the beginning. This will be recovered at the end of the 7 years. On the positive side, Jonathan estimates that the new process will save $350,000 per year in environmental costs (fines and cleanup costs avoided). The cost of capital is 10%. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet Required: Two present value tables are provided: Present Value of a Single Amount and Present Value of an Annuity. Use them as directed in the problem requirements. 1. Prepare a schedule of cash flows for the proposed project. (Assume that there are no income taxes.) If an amount is negative or an outflow, first enter a minus sign (). Schedule of Cash Flows Year 0 Years 17 Years 5 Year 7 2(a) Compute the NPV of the project. For discount factors, use the tables shown in Present Value Tables. Round the present value calculation and your final answer to the nearest whole dollar. If an amount is negative, first enter a minus sign (). The NPV of the project is $ 2(b) Should the new process design be accepted? , the new process design be accepted. Basic Net Present Value Analysis Jonathan Butler, process engineer, knows that the acceptance of a new process design will depend on its economic feasibility. The new process is designed to improve environmental performance. On the negative side, the process design requires new equipment and an infusion of working capital. The equipment will cost $1,100,000, and its cash operating expenses will total $280,000 per year. The equipment will last for 7 years but will need a major overhaul costing $110,000 at the end of the fifth year. At the end of 7 years, the equipment will be sold for $96,000. An increase in working capital totaling $110,000 will also be needed at the beginning. This will be recovered at the end of the 7 years. On the positive side, Jonathan estimates that the new process will save $350,000 per year in environmental costs (fines and cleanup costs avoided). The cost of capital is 10%. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet Required: Two present value tables are provided: Present Value of a Single Amount and Present Value of an Annuity. Use them as directed in the problem requirements. 1. Prepare a schedule of cash flows for the proposed project. (Assume that there are no income taxes.) If an amount is negative or an outflow, first enter a minus sign (). Schedule of Cash Flows Year 0 Years 17 Years 5 Year 7 2(a) Compute the NPV of the project. For discount factors, use the tables shown in Present Value Tables. Round the present value calculation and your final answer to the nearest whole dollar. If an amount is negative, first enter a minus sign (). The NPV of the project is $ 2(b) Should the new process design be accepted? , the new process design be accepted.
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Jonathan Butler a process engineer is evaluating a new process design Here are the key details Initial Equipment Cost 1100000 Operating Expenses 28000... View the full answer
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