| | 1. Determine NPV and IRR based on data below: |
| | | | | | 1 | 2 | 3 | 4 |
| | | | | C0 | C1 | C2 | C3 | C4 |
| | Working Capital |
| | Working capital change |
| | Investment | | | 200,000.00 |
| | Net Investment | | | (200,000.00) |
| | Units | | | | 22,000.00 | 30,000.00 | 14,000.00 | 5,000.00 |
| | Revenue per unit | | 40 |
| | Cost per unit | | 25 |
| | Depr | | | | - 0 | - 0 | - 0 | - 0 |
| | EBIT | | | | - 0 | - 0 | - 0 | - 0 |
| | MACRS % |
| | Tax | | 0.35 | | - 0 | - 0 | - 0 | - 0 |
| | Net | | | | - 0 | - 0 | - 0 | - 0 |
| | Cash Flow | | | (200,000.00) | | | | | |
| | Discount | | 0.20 | - 0 |
| | | | | Net sum |
| | NPV | | | | | | | |
| | IRR |
| | Working capital % of next years revenue | | | 0.20 |
| | 2. Determine NPV, IRR based on data below: |
| | a. Determine Year 4 revenues necessary to produce NPV of | | | | 0 |
| | | | | C0 | C1 | C2 | C3 | C4 |
| | Period | | | 0 | 1 | 2 | 3 | 4 |
| | Net working capital |
| | Working capital change |
| | Capital Investment/salvage | | | 45,000 |
| | Revenues | | | | 40,000 | 30,000 | 20,000 | 10,000 |
| | Variable costs @ | | 0.4 |
| | GM | | | | 40,000 | 30,000 | 20,000 | 10,000 |
| | Deprec | | | | 11,250 | 11,250 | 11,250 | 11,250 |
| | EBIT | | | | 28,750 | 18,750 | 8,750 | (1,250) |
| | Tax | | 0.4 | | 11,500 | 7,500 | 3,500 | (500) |
| | Net | | | | 17,250 | 11,250 | 5,250 | (750) |
| | Cash Flow | | | (45,000) |
| | Discount | | 0.12 | - 0 |
| | | | NPV |
| | | | IRR |
| | Working capital % of next years revenue | | | 0.25 |
| | 3. Determine Equivalent Annual Annuity based on data below: |
| | |
| | Purchase price | 120000 | | | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| | Life | 10 | | C0 | C1 | C2 | C3 | C4 | C5 | C6 |
| | Annual savings | 28,000 |
| | Depreciation |
| | EBIT | 28,000 | NPV |
| 0.4 | Tax | 11,200 | EAC |
| | Net | 16,800 |
| | Cash | 16,800 |
| | Sale of Old Equip | 28,000 |
| | Tax |
| | Net | 28,000 |
| | r | 0.12 |
| | 4. Determine which project offers the most attractive Equivalent Annual Annuity based on following data: |
| | | | | 1 | 2 | 3 | 4 | 5 |
| | Quick & Dirty | | C0 | C1 | C2 | C3 | C4 | C5 |
| Investment | | | 10,000,000.00 |
| Opr costs | | | | 1,000,000.00 | 1,000,000.00 | 1,000,000.00 | 1,000,000.00 | 1,000,000.00 |
| Depr | | | | 2,000,000.00 | 2,000,000.00 | 2,000,000.00 | 2,000,000.00 | 2,000,000.00 |
| Depr tax shield | 0.35 | | |
| PV tax shield | 0.12 |
| Pv(tx shield) |
| Net capital cost |
| EAC |
| | | | | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| | Do it Right | | C0 | C1 | C2 | C3 | C4 | C5 | C6 | C7 | C8 |
| Investment | | | 12,000,000.00 |
| Opr costs | | | | 1,000,000.00 | 1,000,000.00 | 1,000,000.00 | 1,000,000.00 | 1,000,000.00 | 1,000,000.00 | 1,000,000.00 | 1,000,000.00 |
| Depr | | | | 1,500,000.00 | 1,500,000.00 | 1,500,000.00 | 1,500,000.00 | 1,500,000.00 | 1,500,000.00 | 1,500,000.00 | 1,500,000.00 |
| Depr tax shield | 0.35 | | |
| PV tax shield | 0.12 |
| Pv(tx shield) |
| Net capital cost |
| EAC |
| Difference between projects |
| | 5. Determine gain on sale for each condition based on data below: |
| | | | | C0 | | C1 | C2 | C3 | C4 | C5 |
| | Period | | | 0 | | 1 | 2 | 3 | 4 | 5 |
| | Capital Investment/salvage | | | 40,000,000 |
| | Accumulated Depreciation* |
| | Book value @ Year End |
| | (based on 5-year straight line depreciation) |
| | Sales Proceeds | | | | | | | 18,000,000.00 |
| | Book value |
| | Gain on sale |
| | Tax @ | 0.35 |
| | Net |
| | B.V. Add-back |
| | Cash flow |
| | | |
| | | | | MACRS | | Book | Dpr |
| | | | | Yr |
| | | 10,000,000.00 | | 1 | 0.1429 |
| | | | | 2 | 0.2449 |
| | | | | 3 | 0.1749 |
| | | | | 4 | 0.1249 |
| | | | | 5 | 0.0893 |
| | | | | 6 | 0.0892 |
| | | | | 7 | 0.0893 |
| | | | | | 0.0446 |
| | | | | | | | - 0 |
| | Sales Proceeds | | | | | | | 4,500,000.00 |
| | Book value @ end of Year 5 |
| | Gain on sale |
| | Tax @ | 0.35 |
| | Net |
| | B.V. Add-back |
| | Cash flow |