Excel File Edit View Insert Format Tools Data Window Help [Ill Q 2 Sun Dec 8 5:21 PM .. . AutoSave O W A G 7 . C ... X= PFproj (FL24) NYIT ~ Q Search (Cmd + Ctrl + U) C Learnin X New Ta x + Home Insert Draw Page Layout Formulas Data Review View Automate Comments Share M Relaunch to update : Arial V 14 V A " A " =Ev Number Conditional Formatting v Insert v Format as Table v PX Delete v DomainPlace Paste >> | All Bookmarks BIU | ~ |LAV Add-ins Analyze Cell Styles v Format Editing Data H48 x v fx E F G H K M N O Capital Budgeting Decisions (Scenario 2) X 1) Life Period of the Equipment = 4 years 8) Sales for first year (1) 200,000 5 2) New equipment cost (200,000) 9) Sales increase per year 5% nect with Tutor works on Receive your 6 3) Equipment ship & install cost (35,000) 10) Operating cost (60% of Sales) $ (120,000) expert your question solution 7 4) Related start up cost (5,000) (as a percent of sales in Year 1) 60% 8 5) Inventory increase 25,000 11) Depreciation (Full depreciation) $ (240,000) 9 6) Accounts Payable increase 5,000 12) Marginal Corporate Tax Rate (T) 21% 10 7) Equip. salvage value before tax 15,000 13) Cost of Capital (Discount Rate) 10% 11 12 13 Year 2 3 14 Pro tips to get helped ASAP 15 Operations: I/S 16 Revenue $ 200,000 $ 210,000 $ 220,500 $ 231,525 17 Operating Cost $ (120,000) $ 126,000 $ 132,300 $ 138,915 18 Depreciation $ (240,000) $ Ask one question at a 19 EBIT $ (160,000) $ 84,000 $ 88,200 $ 92,610 time 20 Taxes $ (33,600) $ 17,640 $ 18,522 $ 19.448 21 Net Income $ (126,400) $ 66,360 $ 69,678 $ 73,161.9 22 Add back Depreciation $ 240,000 $ $ $ Include all relevant 24 information 25 Total Operating Cash Flow $ 113,600 $ 66,360 $ 69,678 $ 73, 162 26 27 ESTIMATING Initial Outlay (Cash Flow, CFO, T= 0) 28 Use an image to ask a 29 CFO CF1 CF2 CF3 CF4 question that is 30 Year 0 2 3 difficult to type 31 Investments: 2 1) Equipment cost (200,000) 2) Shipping and Install cost (35,000) 34 3) Start up expenses (5,000 35 Total Basis Cost (1+2+3) $ (240,000) 6 4) Net Working Capital 37 Increase in CA - Increase in CL (20,000) Scenario 1 Scenario 2 Ready 1 Accessibility: Good to go - + 100% O [PExcel File Edit View Insert Format Tools Data Window Help [III Q 2 Sun Dec 8 5:21 PM .. . AutoSave O W A G 7 . C ... X= PFproj (FL24) NYIT ~ Q Search (Cmd + Ctrl + U) C Learnin X New Ta x + Home Insert Draw Page Layout Formulas Data Review View Automate Comments Share M Relaunch to update : Arial V 14 V A " A " Number Conditional Formatting v Insert v E Format as Table RX Delete v DomainPlace Paste >> | All Bookmarks BIU | ~ |GAV $ ~ % " | 408 :28 Add-ins Analyze Cell Styles v Format Editing Data H48 X V fx E G H K M N O 33 2) Shipping and Install cost (35,000) X 34 3) Start up expenses (5,000) 35 Total Basis Cost (1+2+3) $ (240,000) 364 Working Capital 37 Increase in CA - Increase in CL $ (20,000) nect with Tutor works on Receive your Total Initial Outlay expert your question solution 38 $ 260,000 39 40 41 Terminal: 42 1) Change in net WC $ $ $ 20,000 43 2) Salvage value (after tax) Salvage Value Before Tax (1-T) 11,850 44 Total 31.850 45 Pro tips to get helped ASAP 46 Project Net Cash Flows $ (260,000) $ 113,600 $ 66,360 $ 69,678 $ 105,012 47 48 NPV = $8,530 IRR = 11.6% Payback= Ask one question at a 49 50 Impact of 2017 Tax Cut Act on Net Income, Cash Flows and time 51 Capital Budgeting (Investment ) Decisions 52 (a Estimate NPV, IRR and Payback Period of the project if equipment is fully depreciated in the first year and tax rate equals to 21%. 53 We see that NPV is $8,530.09, IRR is 11.60% and payback period is between 3 and 4 years. Include all relevant 54 Would you accept the project based on NPV and IRR? Given NPV is positive, and IRR is more than cost of capital, I should accept the project. information 55 56 (C Would you accept the project based on Payback rule if the project cut-off is 3 years? 57 No, I won't because the payback period is more than 3 years. In case, the cutoff was 4 years, I'd have. 58 Use an image to ask a 59 Q#2 As a CFO of the firm, which of the Scenarios (1) or (2) would you choose? Why? question that is 60 61 difficult to type 62 63 64 65 68 69 70 Scenario 1 Scenario 2 + Ready Accessibility: Good to go B J - + 100% O P