Peter Cushions, Inc. is analyzing the proposed purchase of a new machine for $575,000. The proposed...

Peter Cushions, Inc. is analyzing the proposed purchase of a new machine for $575,000. The proposed machine has an estimated economic life of six years but will be treated as five-year MACRS property for depreciation purposes. The machine will increase the firm's capacity, and it is expected to contribute $185,000 annually to earnings before depreciation, interest and taxes. The firm is in a 30% tax bracket and estimates its cost of capital to be 15%.

Calculate the NPV of this investment using an Excel spreadsheet. Show and label your work. Formulas for NPV and IRR are preprogrammed in Excel. Also calculate the IRR.

DO NOT hard enter calculated numbers. The numbers above should be hard entered somewhere on your spreadsheet as given variables. The spreadsheet itself should be comprised of formulas, so that you can change a variable (such as asset cost, tax rate or discount rate) and the spreadsheet will automatically recalculate NPV and IRR.

DO NOT submit someone else’s work. It is ABSOLUTELY IMPERATIVE that each student submits their own spreadsheet.

Make this a clean, professional, properly labeled, one-page report suitable for submission to your supervisor.

Need screenshots of the Excel spreadsheet formulas or explanations of how to get them for the calculations.

Solutions

Expert Solution

I am attaching the required excel screenshot with formulas and answers. Kindly go through it. Kindly also note the following assumptions in mind:

i. While applying MACRS, 200% deduction and half year convention has been followed due to lack of specifics.

ii. Since interest expense is not given, the same is conveniently ignored.

Hope it clarifies your query.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Looner Industries is currently analyzing the purchase of a new machine that costs $ 159,000 and...

Looner Industries is currently analyzing the purchase of a new machine that costs $ 159,000 and requires $ 19,500 in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $ 29,800 to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a 5-year recovery period Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year* Recovery year...

Looner Industries is currently analyzing the purchase of a new machine that costs $165,000 and requires...

Looner Industries is currently analyzing the purchase of a new machine that costs $165,000 and requires $19,800in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $30,400to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a 5-year recovery period (see the table LOADING...for the applicable depreciation percentages) and expects to sell the machine to net $10,400 before taxes at the end of its...

XYZ Inc is considering the purchase of a new machine for the production of computers. Machine A...

XYZ Inc is considering the purchase of a new machine for the production of computers. Machine A costs $6,500,000 and will last for 6 years. Variable costs are 20% of sales and fixed costs are $850,000 per year. Machine B costs $11,000,000 and will last for 10 years. Variable costs for the machine are 15% of sales and fixed costs are $1,000,000 per year. The sales for each machine will be $5,000,000 per year. The required rate of return is 10%,...

Mars Inc. is considering the purchase of a new machine that costs $60,000. This machine will...

Mars Inc. is considering the purchase of a new machine that costs $60,000. This machine will reduce manufacturing costs by $5,000 annually. Mars will use the MACRS accelerated method (shown below) to depreciate the machine, and it expects to sell the machine at the end of its 5-year life for $10,000. The firm expects to be able to reduce net operating working capital by $15,000 when the machine is installed, but the net working capital will return to the original...

Mars Inc. is considering the purchase of a new machine that costs $60,000. This machine will...

Mars Inc. is considering the purchase of a new machine that costs $80,000. This machine will...

Mars Inc. is considering the purchase of a new machine that costs $80,000. This machine will reduce manufacturing costs by $20,000 annually. Mars will use the 3-year MACRS method (shown below) to depreciate the machine, and it expects to sell the machine at the end of its 5-year life for $10,000 salvage value. The firm expects to be able to reduce net operating working capital by $8,000 when the machine is installed, but the net working capital will return to...

Weir Inc. is considering to purchase of new production machine for $100,000. although the purchase of...

Weir Inc. is considering to purchase of new production machine for $100,000. although the purchase of this machine will not produce ny increase in sales revenues , it will result in a reduction of labor costs by $31,000 per year. the shipping cost is is $7,000. in addition it would cost $3,000 to install this machine properly. also because this machine is extremely efficient its purchase would necessitate an increase in inventory of $25,000. this machine has an expected life...

Brooks, Inc. is analyzing two machines to determine which one it should purchase. Whichever machine is...

Brooks, Inc. is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its useful life. The company requires a 12 percent rate of return and uses straight-line depreciation to a zero book value over the life of the machine. Machine A has a cost of $485,000, annual operating costs of $28,500, and a 3-year life. Machine B costs $300,000, has annual operating costs of $45,400, and a 2-year...

Kingbird, Inc. is considering the purchase of a new machine for $650000 that has an estimated...

Kingbird, Inc. is considering the purchase of a new machine for $650000 that has an estimated useful life of 5 years and no salvage value. The machine will generate net annual cash flows of $113750. It is believed that the new machine will reduce downtime because of its reliability. Assume the discount rate is 8%. In order to make the project acceptable, the increase in cash flows per year resulting from reduced downtime must be at least Year Present Value...

The only asset acquired by Don, Inc., in 2019 was a new machine with a purchase...

The only asset acquired by Don, Inc., in 2019 was a new machine with a purchase price of $1,029,000. Don’s current-year taxable income before any Sec. 179 deduction is $60,000. If Don elected to treat the maximum possible amount of this cost as an expense in the current year rather than as a capital expenditure, the basis for determining the MACRS deduction is A. $1,029,000 B. $969,000 C. $9,000 D. $0 [6] All of the following statements regarding the Sec....

Subjects