Marymount University Inventories and Account Receivable Increase Worksheet

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kkuk0

Business Finance

Marymount University

Description

Hello,

I have an excel assignment due tomorrow night. The answers are provided in screenshots. It needs to be done by inputting the formula's.

Thank you

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Domestic capital budgeting example IBM is considering a new expansion project and the finance staff has received information summarized below. • The project require IBM to purchase $900,000 of equipment in 2013 (t=0). • Inventory will increase by $175,000 and accounts payable will rise by $75,000. • The project will last for four years. The company forecasts that they will sell 2,685,000 units in 2014, 2,600,000 units in 2015, 2,525,000 units in 2016, and 2,450,000 units in 2017. Each unit will sell for $2. • The fixed cost of producing the product is $2 million each year. • The variable cost of producing each unit will rise from $1.018, 1.078, 1.046 and $1.221 from 2013 to 2017 respectively. • The equipment will be depreciated under the MACRS system using the applicable rates of 33%, 45%, 15%, and 7% respectively • When the project is completed in 2017 (t=4), the company expects that it will be able to salvage the equipment for $100,000, and it expects that it will fully recover the NWC. • The estimated tax rate is 40%. • Based on the perceived risk, the project’s WACC is estimated to be 10%. Should this project be accepted? Use the NPV and IRR to evaluate ===================================== Steps: Calculate the following: 1. 2. 3. 4. 5. 6. Net income for each year Operating Cash Flow (OCF) for each year  OCF = EBIT + Depreciation - Taxes After tax salvage value  Salvage value – Tax on Gain  Gain = Salvage value – Book value Calculate initial investment Construct projected Free Cash Flow Table Use NPV and IRR to evaluate the free cash flows
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Explanation & Answer

Attached is the completed project. PLease let me know if you have any questions. If not have a great day good bye!

INPUT = DATA SECTION
Inventories Increase
Account Receivable Increase

$
$

175,000.00

Current Liabilities
Equipment Cost
Shipping & Installation

$
$
$

75,000.00
900,000.00
-

$

0%
4 Years
100,000.00

Increase in Unit Price
Project Life
Salvage Value
Unit Sales
Unit Price
Sales Revenue
Fix...


Anonymous
Just the thing I needed, saved me a lot of time.

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