Calculating NPV Excel ?- ENSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW Sign In Paste B l u , Merge & Center Number Conditional Form at as Cell Cells Editing Formatting Table Styl- A1 You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $2.1 million in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials. Based on a recent appraisal, the company believes it could sell the land for $2.3 million on an aftertax basis. In four years, the land could be sold for $2.4 million after taxes. The company also hired a marketing firm to analyze the zither market, at a cost of $125,000. An excerpt of the marketing report is as follows: The zither industry will have a rapid expansion in the next four years. With the brand name recognition that PUTZ brings to bear, we feel that the company will be able to sell 3,600, 4,300, 5,200, and 3,900 units each year for the next four years, respectively. Again, capitalizing on the name recognition of PUTZ, we feel that a premium price of $750 can be charged for each zither. Because zithers appear to be a fad, we feel at the end of the four-year period, sales should be discontinued PUTZ believes that fixed costs for the project will be $415,000 per year, and variable costs are 15 percent of sales. The equipment necessary for production will cost $3.5 million and will be depreciated according to a three-year MACRS schedule. At the end of the project, the equipment can be scrapped for $350,000. Net working capital of $125,000 will be required immediately. PUTZ has a 22 percent tax rate, and the required return on the project is 13 percent. What is the NPV of the project? s 2100000 Sheet1 2 Calculating NPV - Excel HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW Sign In O6Calibri Wrap Text Merge & Center Number Conditional Format as Cell Paste Cells Editin FormattingTable Sty- Clipboard Alignment A1 Original cost of land Current land value Land value in 4 years Marketing study 2,100,000 2,300,000 2,400,000 125,000 S Year 2 4,300 Year 3 5,200 Year 4 3,900 10 Year 1 3,600 12 13 14 15 16 17 18 19 20 21 Units sold Sales price Fixed costs Variable costs Equipment costs Pretax salvage value Net working capital Tax rate Required return 750 415,000 15% 3,500,000 350,000 125,000 22% 13% S Year 1 33.33% Year 2 44.45% Year 3 14.81% Year 4 7.41% MACRS percentages 23 Complete the following analysis. Do not hard code values in your calculations. Enter a "O" for any cost that should not be included. You must use the built-in Excel function to calculate the NPV 25 1... Sheet1 READY + 100% Calculating NPV - Excel FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW Sign In wrap Text Merge & Center Number Conditional For atas sCell, Cells Editing Paste B 1 u -Formatting Table Styls Clipboard Font A1 26 27 28 29 30 31 32 Aftertax cash flow Pretax salvage value Taxes Aftertax salvage value Year 0 Year 1 Year 2 Year 3 Year 4 Revenues Fixed costs Variable costs Depreciation EBT Taxes Net income 34 35 36 37 38 39 40 41 42 43 Equipment Land Net working capital OCF 45 46 47 48 Total cash flow NPV Sheet1 ... Gt READY + 100%