Learning Objectives 1. Understand how to use EXCEL Spreadsheet (a) Develop proforma Income Statement Using Excel Spreadsheet (b) Compute Net Project Cashflows, NPV, and IRR (c) Develop problem-solving and critical thinking skills and make long-term investment decisions 1) Life Period of the Equipment-4 years 2) New equipment cost 3) Equipment ship & install cost 4) Related start up cost 5) Inventory increase 6) Accounts Payable increase 7) Equip. salvage value before tax ($200,000) ($35,000) ($5,000) $25,000 $5,000 $15,000 8) Sales for first year (1) 9) Sales increase per year 10) Operating cost (60% of Sales) (as a percent of sales in Year 1) 11) Depreciation 12) Marginal Corporate Tax Rate (T) 13) Cost of Capital (Discount Rate) S 200,000 5% $ (120,000) -60% Use 3-yr MACRIS 35% 10% Filling data in the cells colored ESTIMATING Initial Outlay (Cash Flow, CFO, T- 0) Year Investments: 1) Equipment cost 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1+2+3) 4) Net Working Capital Total Initial Outlay Operations: Revenue Operating Cost Depreciation EBIT Taxes Net Income Add back Depreciation Total Operating Cash Flow Total Operating Cash Flow Terminal values: 1) Change in net WC 2) Salvage value (after tax) Total only CF0 CF1 CF2 CF3 CF4 Q 1 2 3 4 Project Net Cash Flows $ NPV= $0.00 IRR=> #NUM! Payback= 0.00 Profitability Index = #DIV/O! Discounted Payback = 0.00