Question

New-Project Analysis

Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax manufacturing costs by $110,000 annually. Madison would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $33,000 at the end of its 5-year operating life. The applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. Working capital would increase by $35,000 initially, but it would be recovered at the end of the project's 5-year life. Madison's marginal tax rate is 40%, and a 10% cost of capital is appropriate for the project.

- Calculate the project's NPV. Round your answer to the nearest dollar.

$

Calculate the project's IRR. Round your answer to two decimal places.

%

Calculate the project's MIRR. Round your answer to two decimal places.

%

Calculate the project's payback. Round your answer to two decimal places.

2. Assume management is unsure about the $110,000 cost savings - this figure could deviate by as much as plus or minus 20%. Calculate the NPV if cost savings value deviate by plus 20%. Round your answer to the nearest dollar.

$

Calculate the NPV if cost savings value deviate by minus 20%. Round your answer to the nearest dollar.

$

3. Suppose the CFO wants you to do a scenario analysis with different values for the cost savings, the machine's salvage value, and the working capital (WC) requirement. She asks you to use the following probabilities and values in the scenario analysis:

Scenario |
Probability |
Cost Savings |
Salvage Value |
WC |

Worst case | 0.35 | $ 88,000 | $28,000 | $40,000 |

Base case | 0.35 | 110,000 | 33,000 | 35,000 |

Best case | 0.30 | 132,000 | 38,000 | 30,000 |

Calculate the project's expected NPV. Round your answer to the nearest dollar.

$

Calculate the project's standard deviation. Round your answer to the nearest dollar.

$

Calculate the project's coefficient of variation. Round your answer to two decimal places.

Step 1

As per the guidelines, we can answer the first question as it has multiple sub-parts. Request you to repost the question mentioning which parts to answer for our experts to answer them.

Step 2

Project analysis is important to understand if the project would be of benefit to the organization or not. This is the reason why Net Present Value (NPV), Internal rate of return (IRR), Modified Internal rate of return (MIRR) and Payback period is used.

Operating cash flow of the project is first determined followed by calculating the NPV, IRR, MIRR and payback period of a project

Step 3

Calculatio...

Tagged in

Q: Final Assignment Ed Draycutt is the engineering manager of Airway Technologies, a firm that makes co...

A: Evaluation of Ed’s analysis:Net present value is the one of the best techniques of capital budget as...

Q: What is the difference between life insurance and annuity?

A: Meaning:Life insurance is a cover on financial loss, and it is a contract between insurer and a poli...

Q: You can earn .44 percent per month at your bank if you deposit $2700 how long must you wait until y...

A: We can solve the question using the concept of time value of money. According to the concept of time...

Q: Companies that have preferred stock outstanding promise to pay a stated dividend for an infinite per...

A: Calculate the value of preferred stock as follows:

Q: How would I calculate this using excel? or a financial calculator? the common stock of clinton kne...

A: It is given that,Current price of stock is $20.Increasing rate is 3%.Decreasing rate is 3%.

Q: Russell Securities has $100 million in total assets and its corporate tax rate is 40 percent. The c...

A: Before we get into the question, let's understand the two ratios involved in the question:1. BEP = O...

Q: Unequal Lives Shao Airlines is considering the purchase of two alternative planes. Plane A has an ex...

A: Part 1 & 2:Calculation of Net Present Value and Equivalent Annual Annuity:Since Plane B has a hi...

Q: Mark Weinstein has been working on an advanced technology in laser eye surgery. His technology will ...

A: Calculation of Present Value:The Present Value: of technology is $2,184,376.16.Excel Spreadsheet:

Q: What is the equivalent present value of the following series of payments: $10,000 the first year, $1...

A: Calculate the equivalent present value as follows:

Sorry about that. What wasn’t helpful?