Investment Valuation, accounting homework help.
PLEASE DO NOT ACCEPT IF YOU CANNOT MEET DEADLINE OR DO NOT UNDERSTAND THE REQUIREMENTS:
The scenario is below is what needs to be followed and then the attached spreadsheet needs to be completed based on the scenario:
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Over lunch, you and Cindy meet to discuss next steps with the expansion project.
â€śDo we have everything we need on sales and costs?â€ť you ask. â€ťIt must be time to compute the net present value (NPV) and internal rate of return (IRR) of the Apex expansion project.â€ť
â€śWe have the data from James and Luke regarding projected sales and costs, respectively, for the food packaging project,â€ť says Cindy. â€śIt is feasible to project that we will receive a tax break from this implementation. I have information from our audit firm that indicates that future depreciation methods for taxes will be straight-line; however, the corporate rates will be reduced to 35% as we assumed in our weighted average cost of capital (WACC) calculation.â€ť
â€śThat sounds good,â€ť you say.
â€śRight,” says Cindy. “You can use a WACC of 10% for the computation of the NPV and comparison for IRR.”
â€śIâ€™ve got the information I need from Luke and James,â€ť you say. “Does this look right to you? Hereâ€™s what they gave me,â€ť you say, as you hand a sheet of paper to Cindy.
â€śLetâ€™s look at this now while weâ€™re together,â€ť she says.
The information you hand to Cindy shows the following:
- Initial investment outlay of $30 million, consisting of $25 million for equipment and $5 million for net working capital (NWC) (plastic substrate and ink inventory); NWC recoverable in terminal year
- Project and equipment life: 5 years
- Sales: $25 million per year for five years
- Assume gross margin of 60% (exclusive of depreciation)
- Depreciation: Straight-line for tax purposes
- Selling, general, and administrative expenses: 10% of sales
- Tax rate: 35%
You continue your conversation.
â€śIt looks good,â€ť says Cindy. â€śUse this information from Luke and James to compute the cash flows for the project.â€ť
â€śNo problem,â€ť you say.
â€śThen, compute NPV and IRR of the project using the Excel Spreadsheet I sent earlier today,â€ť says Cindy. â€śUse the IRR financial function for the computation of IRR.â€ť
â€śOkay,â€ť you say. “Iâ€™ll submit my Excel file showing the computation of cash flows, NPV, and IRR by the end of week so you can look at it over the weekend.â€ť
â€śThanks,â€ť says Cindy.