COMPREHENSIVE CHAPTER 12 & 13 PROBLEMS MONARCH CORPORATION IS GOING TO START A NEW PRODUCT LINE OF PRODUCTS IN A WHOLE NEW MARKET. THE DATA FOR ANALYSIS IS PRESENTED BELOW: COST OF THE EQUIPMENT NEEDED $200,000 FIVE YEAR PROPERTY LIFE FOR TAX DEPRECIATION NEW WORKING CAPITAL NEEDS $50,000 WILL BE RECOVERED AT THE END OF THE THIRD YEAR PROJECTED NEW REVENUES: SALES PROBABILITY $225,000 30% $350,000 50% $500,000 20% COST OF GOOD SOLD 25% OF SALES VARIABLE CASH COSTS 15% OF SALES ANNUAL FIXED CASH COSTS: RENT $50,000 CLEANING $20,000 MAINTENANCE & OTHER $20,000 TOTAL FIXED COSTS $90,000 EQUIPMENT DISPOSAL PROCEEDS $20,000 SALVAGE VALUE AT THE END OF YEAR 6 FIRM'S COST OF CAPITAL 9.00% TAX RATE 30% NOTE - WHEN COMPUTING TAX A NET LOSS FOR THE YEAR A POSITIVE TAX SAVINGS IS CREATED SINCE THERE IS OTHER INCOME TAX ON OTHER INCOME TO OFFSET DEPRECIATION RATES FOR TAX PURPOSES: YEAR ONE 20.00% YEAR TWO 32.00% YEAR THREE 19.20% YEAR FOUR 11.50% YEAR FIVE 11.50% YEAR SIX 5.80% ASSUMPTIONS: ALL CASH FLOWS IN YEARS 1-6 OCCUR AT THE END OF THE YEAR. ALL INITIAL CASH INFLOWS OR OUTFLOWS OCCUR TODAY. REQUIRED: A. ASSUMING SALES ARE $225,000 COMPUTE THE PAYBACK, IRR AND NPV. FOR THE NPV COMPUTE AT BOTH THE FIRM'S DISCOUNT RATE AND 11%, WHICH IS A 2% PREMIUM ADDED TO THE RATE. B. COPY THE WHOLE WORKSHEET AND SOLUTIONS FOR PART A TO THE WORSHEET NAMED PART B, AND REDO THE COMPUTATIONS BY CHANGING THE ANNUAL SALES TO $350,000. C. COPY THE WHOLE WORKSHEET AND SOLUTIONS FOR PART A TO THE WORSHEET NAMED PART C, AND REDO THE COMPUTATIONS BY CHANGING THE ANNUAL SALES TO $500,000. Fill in all of the Cells below in Yellow using the information given above. PART A YEARS 0 1 2 3 4 5 6 INITIAL INVESTMENT (NO INCOME TAX AFFECTS) COST OF THE EQUIPMENT NEEDED WORKING CAPITAL NEEDS TOTAL INITIAL INVESTMENT ANNUAL OPERATING RECEIPTS SALES LESS COST OF GOODS SOLD GROSS PROFIT LESS VARIABLE COSTS LESS FIXED COSTS LESS DEPRECIATION PROFIT BEFORE TAX LESS INCOME TAX PROFIT AFTER TAX PLUS DEPRECIATION TOTAL OPERATING CASH FLOWS SALVAGE VALUE ON EQUIPMENT PROCEEDS LESS TAX BASIS OF EQUIPMENT: COST ACCUMULATED DEPRECIATION TAX BASIS GAIN ON SALVAGE LESS TAX ON SALVAGE GAIN NET PROCEEDS ON SALVAGE RELEASE OF WORKING CAPITAL (NO TAX AFFECT) TOTAL CASH FLOWS - - - - - - - CUMULATIVE CASH FLOWS - - - - - - THREE METHODS OF EVALUATION PAYBACK YEARS INTERNAL RATE OF RETURN NET PRESENT VALUE AT 9.00% NET PRESENT VALUE AT 11.00%