Please fill out the ICAR format Excel Cash Flow Estimation Worksheet below with the data based on the provided information here:

Input Data

1. Cost of New Equipment:
   • Delivery cost: $115,000
   • Installation and testing: $3,000
   • Total Cost:$118,000
2. Depreciation of New Equipment:
   • Classified as 7-year property under MACRS.
   • Depreciation rates: Year 1 = 14%, Year 2 = 25%, Year 3 = 17%, Year 4 = 13%, Year 5 = 9%, Year 6 = 9%, Year 7 = 9%, Year 8 = 4%.
3. Salvage Value and Removal Costs:
   • Salvage value: $8,000
   • Removal costs: $1,200
4. Old Equipment:
   • Original cost: $48,000
   • Depreciated over 6 years (straight-line).
   • Depreciated for 5 years.
   • Salvage value: $4,200
   • Removal cost: $1,000
5. Net Working Capital Requirement:
   • Increase by $6,500 at t=0.
6. Annual Cost Savings:
   • $32,000 per year.
7. Financing and Tax Information:
   • Debt ratio: 30%
   • Interest rate on debt: 6%
   • Dividend per share (D0): $2.00
   • Dividend growth rate: 5%
   • Current stock price (P0): $28.00
   • Tax rate: 25%

QUESTIONS

(Please provide answers to the following four questions on the attached Cash Flow

Estimation Worksheet. You should show all your work with Excel formulas/equations for

all computed numbers for Questions 1, 2 & 3, and concise and direct answers for Question

#4 on the attached Cash Flow Estimation Worksheet and answers to te tables at the bottom

of your spreadsheet, whenever applicable. NO WORK SHOWN, NO POINTS.)

1. Compute the firm's weighted average cost of capital given the info/data in the case.

What other approaches/methods can be used to measure the firm's cost of common

equity and thus its WACC? To that end, what additional info/data would you need?

(Hint: A firm's weighted average cost of capital is equal to???? =????(????)(1 - t) +????????,

where???? and???? are the weights of debt and equity in the capital structure;????and ???? are the respective costs of debt and equity; and t is the corporate tax rate; Do no round

up your WACC figure.)

2. Develop a capital budgeting schedule using the attached Cash Flow Estimation

Worksheet (Excel spreadsheet) that should list all relevant cash flow items and

amounts related to the replacement project over the 7-year expected life of the new

pumping system. (Reference Reading: "Cash Flow Analysis Example (RIC Project)",

one of required Readings for the course.)

3. Based on the capital budgeting schedule, evaluate the replacement project by

computing NPV, IRR, MIRR, and Payback Period. Would you recommend to accept

or reject the replacement project based solely on your DCF analysis so far?

4. Before you make the final accept/reject decision, what other factors and approaches

would you consider further? Discuss also how to PRACTICALLY take into account

those factors and approaches in the capital budgeting decision process, whenever

applicable.

W 00 ~ g h & W kN = - i B C D E F G H | J K | E M FALCONVILLE PUMP COMPANY - CASH FLOW ESTIMATION WORKSHEET Input Data (could be more or less than those listed here, Cost of NEW equipment Annual dep. of old equipment Salvage value new equipment Old equipment's depreciable life left Cost of old equipment Old equipment's depreciated years Depreciation of old equipment till date Annal cost savings Salvage value of old equipment Removal cost of old equipment Tax rate Removal cost of new equipment WACC Net working capital requirement M30 V X V Jx v A B C D E F G H I C K L M 20 21 II OPERATING CASH FLOWS OVER THE PROJECT'S LIFE 22 23 24 25 10 26 11 27 12 28 29 III TERMINAL YEAR CASH FLOWS 30 13 31 14 32 15 33 16 34 17 35 36 IV NET CASH FLOWS 37 18 3838 39 V RESULTS NPV 41 IRR = 42 MIRR = 43 Payback period = 44 45 46 DECISION BASED ON YOUR ANALYSIS: 47ANSWERS TO QUESTIONS: Q#1: Q#2: Q#3: Q#4