Calculations must be done in Excel - Using the capital budgeting method of; Tax Effects, then Cash flows, then NPV.

As the financial advisor to All Star Manufacturing you are evaluating the following new investment in a manufacturing project: -

The project has a useful life of 12 years.

Land costs $6m and is estimated to have a resale value of $10m at the completion of the project.

Buildings cost $5m, with allowable depreciation of 10% pa reducing balance and a salvage value of $0.9m.

Equipment costs $4m, with allowable depreciation of 20% pa reducing balance and a salvage value of $0.5m. An investment allowance of 20% of the equipment cost is available.

Revenues are expected to be $7m in year one and rise at 5% pa.

Cash expenses are estimated at $3m in year one and rise at 3% pa.

The new product will be charged $400,000 of allocated head office administration costs each year even though head office will not actually incur any extra costs to manage the project.

An amount of $100,000 has been spent on a feasibility study for the new project.

The project is to be partially financed with a loan of $7.5m to be repaid annually with equal instalments at a rate of 4% pa over 12 years.

Except for initial outlays, assume cash flows occur at the end of each year.

The tax rate is 30% and is payable in the year in which profit is earned.

The after-tax required return for the project is 8% pa.

Required

1. Calculate the NPV. Is the project acceptable? Why or why not?
2. Conduct a sensitivity analysis showing how sensitive the project is to revenues, the resale value of the land and to the required rate of return. Explain your results.

Please provide an Excel calculation answer + An explanation of how the answers were found.