Please help. in excel please (if possible)

problem 4

Franco's athletic club is planning an expansion. The owner is either going to build a completely new building or just add on to the existing facility. A new building will cost $10 million, but it is expected to increase revenues by $2 million (before taxes) per year for ten years. An add-on to the current facility will only cost $500,000, but projections are that it will lead to an increase in revenues of only $150,000 (before taxes) per year for ten years. The capital outlay for either choice will be depreciated on a straight-line basis over the ten-year life of the project. Cash ows from depreciation tax savings should be considered to have the same risk as other cash ows. Franco's Athletic Club has a marginal tax rate of 21% and a cost of capital of 10%. Find the [RR of each project, the incremental [RR and determine which type of an expansion to recommend to the owner. Your company is considering the purchase of Robinstats Inc. Robinstats is not publicly traded, so you need to discount its free cash ows to come up with a purchase price- You have the following information about Robinstats- Remember that all cash ows come at the end of the year. Revenues are expected to be $6 million this year Variable costs are expected to be $3 million this year Fixed costs are expected to be $1.5 million this year Revenues are expected to grow at 10% per year for two years (years 2 and 3) before settling into a constant growth of 3% per year forever Variable costs are expected to grow at 3% per year forever Fixed costs are expected to remain at $1.5 million per year forever 0 If you acquire Robinstats, you will inherit two years of depreciation write-offs of $500,000 per year (years 1 and 2)- There is no risk associated with these write-os, so discount the tax shield they create at the risk-free rate. 0 The marginal corporate tax rate is 21% Your cost of capital is 12% O The risk-free rate is 3% What is the value of Robinstats Inc? Sustef Corporation is considering replacing a machine. The replacement will cut operating expenses by $24,000 per year for each of the ve years the new machine is expected to last. Although the old machine has a remaining useil life of ve years, it only has two years of depreciation left on its schedule ($10,000 per year). If the new machine is purchased, the old machine would be immediately sold for an amount equal to its book value. The new machine will cost $72,000 which will be depreciated over its expected life (no salvage value). Sustef is subject to a 21% tax rate on ordinary income and has a cost of capital of 12 percent. Calculate the NPV of replacing the old machine with the new one. The treasurer of Amaro Canned Fruits, Inc. has projected the cash ows of projects A, B, and C as follows. The relevant discount rate is 12 percent. These projects are mutually exclusive Year Project A Project B Project C 0 -$90,000 -$190,000 -$90,000 1 70,000 130,000 75,000 2 70,000 130,000 60,000 Compute the NPV and RR for each of the three projects and determine which you will do. Sustef Enterprises has been considering the purchase of a new manufacturing facility for $1.2 million. The cost of the facility is to be depreciated on a straight line basis over seven years. It is expected to have no value after seven years. Cash ows from depreciation are considered to be risk-free, so they should be discounted at the risk-free rate. Operating revenues from the facility are expected to be $500,000 during the rst year. The revenues are expected to increase by 3 percent per year during the seven-year life of this facility. Production costs during the rst year are $200,000, and they are expected to remain at that level. Of course, projected revenues and costs are only projections, so they could be higher or lower than what we project. The appropriate discount rate for risky cash ows is 11%, while the riskless interest rate is 2%. The corporate tax rate is 21%. What is the NPV of this investment? LAM corporation is considering buying some soware from IBM to help with the online sales from its website. The software package costs $850,000 and will be fully expensed in the year that it is purchased. It is predicted that the purchase of this software will directly result in an increase in sales of $500,000 during the rst year it is used, and the increased sales will grow at a rate of 4% per year during years two, three, four, and ve. It is expected that this software will be obsolete and need to be upgraded after ve years. Cost of goods sold and operating expenses for LAM are 25% of sales each year- The additional business resulting from the software means that LAM needs an increase in net working capital of $25,000 immediately. This additional net working capital will be recovered in full at the end of the lth year. The corporate tax rate for LAM is 21% and the required rate of return on it is 18%. What is the NPV and the IRR for the purchase of the new software? A proposed project requires no working capital, but it does need an initial investment of $200,000 which can be depreciated to a value of zero on a straight-line basis for five years. During those five years, sales are expected to grow at a rate of 20% per year, starting with $100,000 during the first year. At the end of the five years, sales are expected to only grow at 3% per year in perpetuity. Expenses are expected to be $40,000 during the first year and are expected to grow at a rate of 3% in perpetuity immediately thereafter. The firm's marginal tax rate is 21% and investors require an 18% rate of return on projects with this level of risk. What is the net present value of this project