Please help me out with these accounting questions (USE EXCEL) Welti Corporation
ID: 2799112 • Letter: P
Question
Please help me out with these accounting questions (USE EXCEL)
Welti Corporation has provided the following information concerning a capital budgeting project: 7% 30% 4 After-tax discount rate Tax rate Expected life of the project Investment required in equipment $192,000 Salvage value of equipment Annual sales Annual cash operating expenses $265,000 $0 $390,000 The company uses straight-line depreciation on all equipment the annual depreciation expense will be $48,000. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting Required: Calculate the net present value of the project: (Consider income taxes when calculating the net present value. Use Microsoft Excel to calculate present values and do not round intermediate calculations. Round your final answer to two decimal places.) Net Present ValueExplanation / Answer
Requirement 1:
Annual sales
$ 390,000
Less: Annual Cash Operating expenses
$ 265,000
EBITDA
$ 125,000
Less: Depreciation
$ 48,000
EBIT
$ 77,000
Tax @ 30 %
$ 23,100
Net Income
$ 53,900
Add: Depreciation
$ 48,000
OCF
$ 101,900
Calculation of NPV:
Year
Cash Flow
Formula for PV Factor
PV Factor
PV
0
$ (192,000)
1/(1+0.07)^0
1
$ (192,000.00)
1
$ 101,900
1/(1+0.07)^1
0.934579439
$ 95,233.64
2
$ 101,900
1/(1+0.07)^2
0.873438728
$ 89,003.41
3
$ 101,900
1/(1+0.07)^3
0.816297877
$ 83,180.75
4
$ 101,900
1/(1+0.07)^4
0.762895212
$ 77,739.02
NPV
$ 153,156.83
NPV is $ 153,156.83
Requirement 2:
Year
Cash Flow
Formula for PV Factor
PV Factor
PV
0
$ (210,000)
1/(1+0.07)^0
1
$ (210,000.00)
1
$ 45,000
1/(1+0.07)^1
0.934579439
$ 42,056.07
2
$ 45,000
1/(1+0.07)^2
0.873438728
$ 39,304.74
3
$ 45,000
1/(1+0.07)^3
0.816297877
$ 36,733.40
4
$ 45,000
1/(1+0.07)^4
0.762895212
$ 34,330.28
5
$ 66,000
1/(1+0.07)^5
0.712986179
$ 47,057.09
NPV
$ (10,518.41)
Cash flow on year 5th = Cost saving + salvage value = $ 45,000 + $ 21,000 = $ 66,000
NPV is $ (10,518.41)
Hence 1st “(-$10,518)” is correct answer.
Annual sales
$ 390,000
Less: Annual Cash Operating expenses
$ 265,000
EBITDA
$ 125,000
Less: Depreciation
$ 48,000
EBIT
$ 77,000
Tax @ 30 %
$ 23,100
Net Income
$ 53,900
Add: Depreciation
$ 48,000
OCF
$ 101,900