Question

1. Understand how to use EXCEL Spreadsheet
(a) Develop proforma Income Statement Using ExcelSpreadsheet
(b) Compute Net Project Cashflows,NPV, and IRR
(c) Developproblem-solving and critical thinking skills
	and make long-term investment decisions
1) LifePeriod of the Equipment = 4 years				8) Sales for first year (1)			$200,000
2) Newequipment cost			$(200,000)	9) Sales increase per year			5%
3)Equipment ship & install cost			$(35,000)	10) Operating cost (60% of Sales)			$(120,000)
4) Relatedstart up cost			$(5,000)	(as a percent of sales in Year 1)			-60%
5)Inventory increase			$25,000	11) Depreciation (Straight Line)/YR			$(60,000)
6) AccountsPayable increase			$5,000	12) Marginal Corporate Tax Rate (T)			21%
7) Equip.salvage value before tax			$15,000	13) Cost of Capital (Discount Rate)			10%
ESTIMATING Initial Outlay (Cash Flow, CFo, T= 0)
			CF0	CF1	CF2	CF3	CF4
Year			0	1	2	3	4
Investments:
1)Equipment cost
2) Shippingand Install cost
3) Start upexpenses
Total Basis Cost (1+2+3)
4) Net Working Capital
Total Initial Outlay
Operations:
Revenue
OperatingCost
Depreciation
EBIT
Taxes
Net Income
Addback Depreciation
Total Operating Cash Flow				XXXXX	XXXXX	XXXXX	XXXXX
Terminal:
1) Changein net WC				$-	$-	$-	$20,000
2) Salvagevalue (after tax)			Salvage Value Before Tax (1-T)				XXXXX
Total							XXXXX
Project Net Cash Flows			$-	$-	$-	$-	$
NPV =			IRR =			Payback=
Q#1	Would you accept the project based on NPV, IRR?
	Would you accept the project based on Payback rule if projectcut-off
	is 3years?
Q#2 Impact of 2017 Tax Cut Acton Net Income, Cash Flows and
	Capital Budgeting (Investment ) Decisions
(a)	Estimate NPV, IRR and Payback Period of the project if equipment isfully
	depreciated in first year and tax rate equalsto 21%. Would you
	accept or reject the project?
(b)	As a CFO of the firm, which of the above two scenario(a) or (b)
	would you choose? Why?
Q#3 How would you explain to your CEOwhat NPV means?
Q#4 What are advantages anddisadvantages of using only Payback method?
Q#5 What are advantages and disadvantages of usingNPV versus IRR?
Q#6 Explain the difference between independent projectsand mutually exclusive projects.
	When you are confronted with Mutually Exclusive Projects and havecoflicts
	with NPV and IRR results, which criterion would you use (NPV orIRR) and why? *****SHOW WORK PLEASE !!!!