Problem 11-12 New-Project Analysis Madison Manufacturing is considering a new ma
ID: 2730412 • Letter: P
Question
Problem 11-12
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 13% WACC is appropriate for the project.
A. Calculate the project's NPV. Round your answer to the nearest dollar.
$ -12358 -->Correct
Calculate the project's IRR. Round your answer to two decimal places
% 11.64 -->Correct
Calculate the project's MIRR. Round your answer to two decimal places
% 12.27 -->Correct
Calculate the project's payback. Round your answer to two decimal places
4.25 & 3.25-->Wrong
B. Assume management is unsure about the $110,000 cost savings - this figure could deviate by plus 20%. Calculate the NPV over the five-year period. Round your answer to the nearest dollar.
$ 14576 -->Wrong
Calculate the NPV over the five-year period if this figure could deviate by minus 20%. Round your answer to the nearest dollar.
$ 36756-->Wrong
C. 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:
Calculate the project's expected NPV. Round your answer to the nearest dollar.
$ 144780 -->Wrong
Calculate the project's standard deviation. Round your answer to the nearest dollar.
$ 4007-->Wrong
Calculate the project's coefficient of variation. Round your answer to two decimal places
0.98 -->Wrong
******Please someone give me right answer, I am posting same question 3rd time.
Scenario
Probability Cost
Savings Salvage
Value
WC Worst case 0.25 $ 88,000 $28,000 $40,000 Base case 0.45 110,000 33,000 35,000 Best case 0.30 132,000 38,000 30,000
Explanation / Answer
A)
Depreciation computation
B)
Cash flows occurred during the period Year 1 2 3 4 5 Savings before tax 110,000 110,000 110,000 110,000 110,000 Depreciation 116,655 155,750 51,835 25,935 - PBT (6,655) (45,750) 58,165 84,065 110,000 Tax@40% (2,662) (18,300) 23,266 33,626 44,000 PAT (3,993) (27,450) 34,899 50,439 66,000 ADD:Depreciation 116,655 155,750 51,835 25,935 - Free Cash flows 112,662 128,300 86,734 76,374 66,000