Widget Inc is thinking of automating their packaging process. They price out the actual automated packager...

 

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Widget Inc is thinking of automating their packaging process. They price out the actual automated packager at $50,000. They also calculate that by automating their packaging process. they will save $15,000/year. The packaging machine has a 5-year asset life. What is the ROI if Widget automates their stamping process? Question #2 (10 points) Widget Inc. decided to purchase that automated packaging machine for $100,000 using a bank loan with an interest rate of 7.25%; however, they did not calculate the discounted cash flow. Calculate each year's discounted cash flow, as well as the total. (HINT: use the interest rate here as the discount rate). Year 2 12345 Cash Flow $15,000 $15,000 $15,000 4 $15,000 5 $15,000 Total DCF: DCF Question #3 (5 points) Explain DCF and why $15,000 of payments in the future are not valued at $15,000 today. Question #4 (10 points) Now that we have the sum of all of the discounted cash flows, calculate the net present value of this capital expenditure. Question #5 (15 points) Widget Inc has various sources of capital, included long term bank notes, equity, and short-term notes. Currently, Widget Inc's WACC is 5.75%. Recalculate the DCFs and NPS using the WACC. Year 1 Cash Flow DCF $15,000 2 $15,000 3 $15,000 4 $15,000 5 $15,000 Total DCF: Question #6 (10 points) Using the information from questions #2 & #5, and that the IRR from Question #5 is 15.24%, explain why or why not Widget Inc should have borrowed money at that interest rate from the bank to fund the project. Question #7 (30 (15 points) The CEO of Widget Inc was not pleased with the haphazard and non-analytical way that the automated packaging machine project was evaluated & implemented. As the new financial analyst at Widget Inc, the CEO turns to you for help on upcoming decisions. Currently, there is $2.2M in the budget for capital investments with an emphasis on R&D. An opportunity has arisen to implement two projects: a new CNC machine OR a state of the art 3D printing unit. Using the company's WACC of 5.75%, analyze each projects viability & make a decision which project should be implemented. Project A: CNC Machine Cost: $1,100,000 Year Cash Flow DCF 1 $500,000 2 $450,000 3 $350,000 4 $250,000 5 $150,000 ROI = Total Lifetime Return= DCF Total = NPV = Project B: 3D Printer Cost: $1,850,000 Year 1 2 3 4 5 ROI = Total Lifetime Return= DCF Total = NPV = Cash Flow DCF $600,000 $550,000 $450,000 $150,000 $50,000 Question #8 (15 points) What are some risks to consider outside of ROI, NPV., DCFs, etc. that an analyst may want to consider, research, and analyze in order to make a well-informed decision regarding capital investments? Widget Inc is thinking of automating their packaging process. They price out the actual automated packager at $50,000. They also calculate that by automating their packaging process. they will save $15,000/year. The packaging machine has a 5-year asset life. What is the ROI if Widget automates their stamping process? Question #2 (10 points) Widget Inc. decided to purchase that automated packaging machine for $100,000 using a bank loan with an interest rate of 7.25%; however, they did not calculate the discounted cash flow. Calculate each year's discounted cash flow, as well as the total. (HINT: use the interest rate here as the discount rate). Year 2 12345 Cash Flow $15,000 $15,000 $15,000 4 $15,000 5 $15,000 Total DCF: DCF Question #3 (5 points) Explain DCF and why $15,000 of payments in the future are not valued at $15,000 today. Question #4 (10 points) Now that we have the sum of all of the discounted cash flows, calculate the net present value of this capital expenditure. Question #5 (15 points) Widget Inc has various sources of capital, included long term bank notes, equity, and short-term notes. Currently, Widget Inc's WACC is 5.75%. Recalculate the DCFs and NPS using the WACC. Year 1 Cash Flow DCF $15,000 2 $15,000 3 $15,000 4 $15,000 5 $15,000 Total DCF: Question #6 (10 points) Using the information from questions #2 & #5, and that the IRR from Question #5 is 15.24%, explain why or why not Widget Inc should have borrowed money at that interest rate from the bank to fund the project. Question #7 (30 (15 points) The CEO of Widget Inc was not pleased with the haphazard and non-analytical way that the automated packaging machine project was evaluated & implemented. As the new financial analyst at Widget Inc, the CEO turns to you for help on upcoming decisions. Currently, there is $2.2M in the budget for capital investments with an emphasis on R&D. An opportunity has arisen to implement two projects: a new CNC machine OR a state of the art 3D printing unit. Using the company's WACC of 5.75%, analyze each projects viability & make a decision which project should be implemented. Project A: CNC Machine Cost: $1,100,000 Year Cash Flow DCF 1 $500,000 2 $450,000 3 $350,000 4 $250,000 5 $150,000 ROI = Total Lifetime Return= DCF Total = NPV = Project B: 3D Printer Cost: $1,850,000 Year 1 2 3 4 5 ROI = Total Lifetime Return= DCF Total = NPV = Cash Flow DCF $600,000 $550,000 $450,000 $150,000 $50,000 Question #8 (15 points) What are some risks to consider outside of ROI, NPV., DCFs, etc. that an analyst may want to consider, research, and analyze in order to make a well-informed decision regarding capital investments?