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AutoSave Off He Graded Problem #7 - Excel O Search Samuel Weiss01 SW File Home Insert Page Layout Formulas Data Review View Help Share Comments Times New Roman 10 = = ~AP a Wrap Text Number 7 @ IN Analyze Data Paste BIU - A, E E Merge & Center $ %) 08 Insert Delete Format Conditional Format as Cell Formatting Table Styles Styles Sort & Find & Filter Select Editing Clipboard Font Alignment Number Cells Analysis M16 fic J K L M M N 0 R A B D E F G H I 4 5 The MBA Plus One Program Corporation has developed a powerful new server that would be used for 6 corporations' Internet activities. It would cost $15 million at Year 0 to buy the equipment necessary to 7 manufacture the server. The project would require net working capital at the beginning of each year in an 8 amount equal to 15% of the year's projected sales; for example, NWCO = 15%(Sales). 9 10 The firm believes it could sell 1,000 units per year. The servers would sell for $26,000 per unit, and The 11 Corporation' believes that variable costs would amount to $18,000 per unit. After Year 1, the sales price and 12 variable costs will increase at the inflation rate of 3%. The company's nonvariable costs would be $1 million 13 at Year 1 and also would increase at the 3% inflation rate. 14 15 The server project would have a life of 4 years. If the project is undertaken, it must be continued for the 16 entire 4 years. The equipment would be depreciated over a 5-year period, using MACRS rates. The estimated 17 market value of the equipment at the end of the project's 4-year life is $500,000. 18 19 The Corporations' federal-plus-state tax rate is 25%. Its cost of capital is 10% for average-risk projects, 20 defined as projects with a coefficient of variation of NPV between 0.8 and 1.2. Low-risk projects are 21 evaluated with a WACC of 8%, and high-risk projects at 13%. Also, the project's returns are expected to be 22 highly correlated with returns on the firm's other assets. 23 24 a. Develop a spreadsheet model, and use it to find the project's NPV, IRR, payback and MIRR. 25 26 Input Data (in thousands of dollars) 27 Scenario name Base Case 28 Probability of scenario 50% 29 Equipment cost $15,000 30 Net operating working capital/Sales | 15% Key Results: Graded Problem #7 + Ready Calculate Type here to search + 100% - W 69F D 11:01 AM 10/4/2021 F 4 AutoSave Off He Graded Problem #7 - Excel O Search Samuel Weiss01 SW File Home Insert Page Layout Formulas Data Review View Help Share Comments Times New Roman 10 = = ~AP a Wrap Text Number 7 @ IN Analyze Data Paste BIU - a. Av E E Merge & Center $ %) 08 Insert Delete Format Conditional Format as Cell Formatting Table Styles Styles Sort & Find & Filter Select Editing Clipboard Font Alignment Number Cells Analysis M16 X fox H | J K L M M N o R = . B D E F G 30 Net operating working capital/Sales 15% Key Results: 31 First year sales (in units) 1,000 NPV = $960 32 Sales price per unit $26.00 IRR 7.7% 33 Variable cost per unit (excl. depr.) $18.00 Payback = 2.80 34 Nonvariable costs (excl. depr.) $1,000 MIRR= 0.08 35 Inflation in prices and costs 3.0% 36 Estimated salvage value at year 4 $500 37 Depreciation years Year 1 Year 2 Year 3 Year 4 38 Depreciation rates 20.00% 32.00% 19.20% 11.52% 39 Tax rate 25% 40 WACC for average-risk projects 10% 41 42 Intermediate Calculations 0 1 2 43 Units sold 1,000 1,320 44 Sales price per unit (excl. depr.) $26.00 $26.78 45 Variable costs per unit (excl. depr.) $18.00 $18.54 46 Nonvariable costs (excl. depr.) 1,000 1,030 47 Sales revenue $38 $26,000 $35,350 48 Required level of net operating working capital $2,600 $3,535 $3,288 49 Basis for depreciation $15,000 50 Annual equipment depr. rate 20.00% 32.00% 51 Annual depreciation expense $3,000 $4,800 52 Ending Bk Val: Cost - Accum Dep'n $15,000 $12,000 $7,200 53 Salvage value 54 Profit (or loss) on salvage 55 Tax on profit (or loss) 56 Net cash flow due to salvage Graded Problem #7 3 1,192 $27.58 $19.10 1,061 $32,879 $3,168 4 1,115 $28.41 $19.67 1,093 $31,684 $0 19.20% $2,880 $4,320 11.52% $1,728 $2,592 $500 $2,092 $523 $1.023 W + 100% Ready Calculate Type here to search j o E 0 W 69F O llra 4x 11:01 AM 10/4/2021 F 4 AutoSave Off He Graded Problem #7 - Excel O Search Samuel Weiss01 SW File Home Insert Page Layout Formulas Data Review View Help Share Comments Times New Roman 10 ~ Ai = = a Wrap Text Number 7 @ IN Analyze Data Paste BIU - A E E Merge & Center $ %) 08 Insert Delete Format Conditional Format as Cell Formatting Table Styles Styles Sort & Find & Filter Select Editing Clipboard Font Alignment Number Cells Analysis M16 fic E F H I J K L M M N o R 0 1 $26,000 18,000 1,000 3,000 $4,000 1,000 $1,000 G Years 2 $35,350 24,473 1,030 4,800 $5,047 1,262 $1,262 4,800 3 $32,879 22,763 1,061 2,880 $6,176 1,544 $1,544 2,880 4 $31,684 21,935 1,093 1,728 $6.928 1,732 $1,732 1,728 3,000 $15,000 $2,600 $935 $247 $120 A B D 57 58 Cash Flow Forecast 59 Sales revenue 60 Variable costs 61 Nonvariable operating costs 62 Depreciation (equipment) 63 Oper. income before taxes (EBIT) 64 Taxes on operating income (40%) 65 Net operating profit after taxes 66 Add back depreciation 67 Equipment purchases 68 Cash flow due to change in NOWC 69 Net cash flow due to salvage 70 Net Cash Flow (Time line of cash flows) 71 72 Key Results: Appraisal of the Proposed Project 73 74 Net Present Value (at 10%) = ($960) 75 IRR = 7.72% 76 MIRR 8.47% 77 Payback = 2.80 78 Discounted Payback = 79 Data for Payback Years 80 81 Net cash flow 82 Cumulative CF 83. Part of vear required for navhack Graded Problem #7 $3,168 $1,023 $7,651 $17,600 $3,065 $6,309 $4,544 0 $17,600 $17,600 1 $3,065 $14,535 100 Years 2 $6,309 $8,226 1.00 3 $4,544 $3,683 0.80 4 $7,651 $3,969 0.00 Ready Calculate W + 100% Type here to search | 0 W 69F 0 a 4x 11:01 AM 10/4/2021 F 4 AutoSave Off He Graded Problem #7 - Excel O Search Samuel Weiss01 SW File Home Insert Page Layout Formulas Data Review View Help Share Comments Times New Roman 10 = = ~AP ab Wrap Text Number AY @ IN Analyze Data Paste BIU - a. Av E E Merge & Center $ %) 08 Insert Delete Format Conditional Format as Cell Formatting Table Styles Styles Sort & Find & Filter Select Editing Clipboard Font Alignment Number Cells Analysis M16 for J K L M M N o R 1 4 $7,651 $3,969 0.00 $14,535 4 $7,651 . B D E F G H 80 0 1 2 3 81 Net cash flow $17,600 $3,065 $6,309 $4,544 82 Cumulative CF $17,600 $8,226 $3,683 83 Part of year required for payback 1.00 1.00 0.80 84 85 86 Data for Discounted Payback Years Years 87 0 1 2 3 88 Net cash flow $17,600 $3,065 $6,309 $4,544 89 Discounted cash flow 90 Cumulative CF 91 Part of year required for discounted payback 92 93 94 95 96 On the basis of information in the problem, would you recommend that the project be accepted? 97 98 99 The project seems to have high risk but can be accepted. It could produce a positive NPV. 100 101 102 103 104 105 106 Graded Problem #7 # Ready Calculate W + 100% Type here to search O W 69F O llra 4x 11:01 AM 10/4/2021 F 4 AutoSave Off He Graded Problem #7 - Excel O Search Samuel Weiss01 SW File Home Insert Page Layout Formulas Data Review View Help Share Comments Times New Roman 10 = = ~AP a Wrap Text Number 7 @ IN Analyze Data Paste BIU - A, E E Merge & Center $ %) 08 Insert Delete Format Conditional Format as Cell Formatting Table Styles Styles Sort & Find & Filter Select Editing Clipboard Font Alignment Number Cells Analysis M16 fic J K L M M N 0 R A B D E F G H I 4 5 The MBA Plus One Program Corporation has developed a powerful new server that would be used for 6 corporations' Internet activities. It would cost $15 million at Year 0 to buy the equipment necessary to 7 manufacture the server. The project would require net working capital at the beginning of each year in an 8 amount equal to 15% of the year's projected sales; for example, NWCO = 15%(Sales). 9 10 The firm believes it could sell 1,000 units per year. The servers would sell for $26,000 per unit, and The 11 Corporation' believes that variable costs would amount to $18,000 per unit. After Year 1, the sales price and 12 variable costs will increase at the inflation rate of 3%. The company's nonvariable costs would be $1 million 13 at Year 1 and also would increase at the 3% inflation rate. 14 15 The server project would have a life of 4 years. If the project is undertaken, it must be continued for the 16 entire 4 years. The equipment would be depreciated over a 5-year period, using MACRS rates. The estimated 17 market value of the equipment at the end of the project's 4-year life is $500,000. 18 19 The Corporations' federal-plus-state tax rate is 25%. Its cost of capital is 10% for average-risk projects, 20 defined as projects with a coefficient of variation of NPV between 0.8 and 1.2. Low-risk projects are 21 evaluated with a WACC of 8%, and high-risk projects at 13%. Also, the project's returns are expected to be 22 highly correlated with returns on the firm's other assets. 23 24 a. Develop a spreadsheet model, and use it to find the project's NPV, IRR, payback and MIRR. 25 26 Input Data (in thousands of dollars) 27 Scenario name Base Case 28 Probability of scenario 50% 29 Equipment cost $15,000 30 Net operating working capital/Sales | 15% Key Results: Graded Problem #7 + Ready Calculate Type here to search + 100% - W 69F D 11:01 AM 10/4/2021 F 4 AutoSave Off He Graded Problem #7 - Excel O Search Samuel Weiss01 SW File Home Insert Page Layout Formulas Data Review View Help Share Comments Times New Roman 10 = = ~AP a Wrap Text Number 7 @ IN Analyze Data Paste BIU - a. Av E E Merge & Center $ %) 08 Insert Delete Format Conditional Format as Cell Formatting Table Styles Styles Sort & Find & Filter Select Editing Clipboard Font Alignment Number Cells Analysis M16 X fox H | J K L M M N o R = . B D E F G 30 Net operating working capital/Sales 15% Key Results: 31 First year sales (in units) 1,000 NPV = $960 32 Sales price per unit $26.00 IRR 7.7% 33 Variable cost per unit (excl. depr.) $18.00 Payback = 2.80 34 Nonvariable costs (excl. depr.) $1,000 MIRR= 0.08 35 Inflation in prices and costs 3.0% 36 Estimated salvage value at year 4 $500 37 Depreciation years Year 1 Year 2 Year 3 Year 4 38 Depreciation rates 20.00% 32.00% 19.20% 11.52% 39 Tax rate 25% 40 WACC for average-risk projects 10% 41 42 Intermediate Calculations 0 1 2 43 Units sold 1,000 1,320 44 Sales price per unit (excl. depr.) $26.00 $26.78 45 Variable costs per unit (excl. depr.) $18.00 $18.54 46 Nonvariable costs (excl. depr.) 1,000 1,030 47 Sales revenue $38 $26,000 $35,350 48 Required level of net operating working capital $2,600 $3,535 $3,288 49 Basis for depreciation $15,000 50 Annual equipment depr. rate 20.00% 32.00% 51 Annual depreciation expense $3,000 $4,800 52 Ending Bk Val: Cost - Accum Dep'n $15,000 $12,000 $7,200 53 Salvage value 54 Profit (or loss) on salvage 55 Tax on profit (or loss) 56 Net cash flow due to salvage Graded Problem #7 3 1,192 $27.58 $19.10 1,061 $32,879 $3,168 4 1,115 $28.41 $19.67 1,093 $31,684 $0 19.20% $2,880 $4,320 11.52% $1,728 $2,592 $500 $2,092 $523 $1.023 W + 100% Ready Calculate Type here to search j o E 0 W 69F O llra 4x 11:01 AM 10/4/2021 F 4 AutoSave Off He Graded Problem #7 - Excel O Search Samuel Weiss01 SW File Home Insert Page Layout Formulas Data Review View Help Share Comments Times New Roman 10 ~ Ai = = a Wrap Text Number 7 @ IN Analyze Data Paste BIU - A E E Merge & Center $ %) 08 Insert Delete Format Conditional Format as Cell Formatting Table Styles Styles Sort & Find & Filter Select Editing Clipboard Font Alignment Number Cells Analysis M16 fic E F H I J K L M M N o R 0 1 $26,000 18,000 1,000 3,000 $4,000 1,000 $1,000 G Years 2 $35,350 24,473 1,030 4,800 $5,047 1,262 $1,262 4,800 3 $32,879 22,763 1,061 2,880 $6,176 1,544 $1,544 2,880 4 $31,684 21,935 1,093 1,728 $6.928 1,732 $1,732 1,728 3,000 $15,000 $2,600 $935 $247 $120 A B D 57 58 Cash Flow Forecast 59 Sales revenue 60 Variable costs 61 Nonvariable operating costs 62 Depreciation (equipment) 63 Oper. income before taxes (EBIT) 64 Taxes on operating income (40%) 65 Net operating profit after taxes 66 Add back depreciation 67 Equipment purchases 68 Cash flow due to change in NOWC 69 Net cash flow due to salvage 70 Net Cash Flow (Time line of cash flows) 71 72 Key Results: Appraisal of the Proposed Project 73 74 Net Present Value (at 10%) = ($960) 75 IRR = 7.72% 76 MIRR 8.47% 77 Payback = 2.80 78 Discounted Payback = 79 Data for Payback Years 80 81 Net cash flow 82 Cumulative CF 83. Part of vear required for navhack Graded Problem #7 $3,168 $1,023 $7,651 $17,600 $3,065 $6,309 $4,544 0 $17,600 $17,600 1 $3,065 $14,535 100 Years 2 $6,309 $8,226 1.00 3 $4,544 $3,683 0.80 4 $7,651 $3,969 0.00 Ready Calculate W + 100% Type here to search | 0 W 69F 0 a 4x 11:01 AM 10/4/2021 F 4 AutoSave Off He Graded Problem #7 - Excel O Search Samuel Weiss01 SW File Home Insert Page Layout Formulas Data Review View Help Share Comments Times New Roman 10 = = ~AP ab Wrap Text Number AY @ IN Analyze Data Paste BIU - a. Av E E Merge & Center $ %) 08 Insert Delete Format Conditional Format as Cell Formatting Table Styles Styles Sort & Find & Filter Select Editing Clipboard Font Alignment Number Cells Analysis M16 for J K L M M N o R 1 4 $7,651 $3,969 0.00 $14,535 4 $7,651 . B D E F G H 80 0 1 2 3 81 Net cash flow $17,600 $3,065 $6,309 $4,544 82 Cumulative CF $17,600 $8,226 $3,683 83 Part of year required for payback 1.00 1.00 0.80 84 85 86 Data for Discounted Payback Years Years 87 0 1 2 3 88 Net cash flow $17,600 $3,065 $6,309 $4,544 89 Discounted cash flow 90 Cumulative CF 91 Part of year required for discounted payback 92 93 94 95 96 On the basis of information in the problem, would you recommend that the project be accepted? 97 98 99 The project seems to have high risk but can be accepted. It could produce a positive NPV. 100 101 102 103 104 105 106 Graded Problem #7 # Ready Calculate W + 100% Type here to search O W 69F O llra 4x 11:01 AM 10/4/2021 F 4