Assume that your company is considering the replacement of an automated milling machine with one of the new machines offered by three different manufacturers.

profilecabose1

Assume that your company is considering the replacement of an automated milling machine with one of the new machines offered by three different manufacturers.  Each of the three machines under consideration is expected to have an economic life of five years and will result in greater daily production capacity and therefore increased sales volume. The increased volume will require an increase in working capital during the first year to a level that will remain constant until the end of the five years.  The decision of which specific machine to select will depend on a net present value analysis.  The old machine has reached the end of its estimated useful life and can be sold at the salvage value that was projected when the machine was first installed.Your task is to identify whether the factor would be included in the calculation for the initial investment, or the operating cash flow, or the terminal value, or is not relevant to this decision.  You must also explain whether failure to appropriately include the factor in the calculation would result in overstating or understating the net present value of the project.

FACTORS
Purchase price of capital asset
Incremental annual depreciation expense
Total company sales revenue    
Cash realized from sale of the old machine at its estimated salvage value    
Interest on the loan used to finance the asset purchase
Total annual depreciation expense         
Increase in working capital
Decrease in working capital
Total net income before tax
Incremental net income before tax
Marginal income tax rate
Investment tax credit
Cost of shipping and installing the new equipment

Directions and Grading Criteria

To complete this assignment, you are to develop a Powerpoint presentation.  You should create  1-3 slides that identify the factors used to  determine the initial investment,  2-5 slides that identify the factors used to  determine the operating cash flow estimates, and  1-3 slides that identify the factors used to   determine the terminal value estimate.  You must also indicate on the slides whether failure to appropriately include the factor in the calculation would result in overstating or understating the net present value of the project.  Additional explanations or comments should appear in the speaker notes for each slide.  APA standards for writing style must be applied to the speaker notes.  Factors that are not relevant to the NPV calculation should not be included on any slide.

    • 9 years ago
    • 5
    Answer(4)

    Purchase the answer to view it

    blurred-text
    • attachment
      estimating_cash_flows.docx
    • attachment
      estimating_cash_flows.xls
    • attachment
      estimating_cash_flows.pptx

    Purchase the answer to view it

    blurred-text
    NOT RATED
    • attachment
      net_present_value_presentation_material.docx
    • attachment
      net_present_value_presentation_material.xlsx
    • attachment
      investment_appraisal.pptx

    Purchase the answer to view it

    blurred-text
    NOT RATED
    • attachment
      cash_flow_cabose1.docx
    • attachment
      cashflow_cabose1.xlsx

    Purchase the answer to view it

    blurred-text
    NOT RATED
    • attachment
      net_present_value_presentation__material.docx
    • attachment
      net_present_value_presentation__material.xlsx
    • attachment
      net_present_value_presentation_material.pptx