Copy of JWI 530 Assignment 2

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Strayer University *

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Course

530

Subject

Finance

Date

Feb 20, 2024

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xlsx

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36

Uploaded by sigmadawg7

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Julie's Lemonade Fill in all of the inputs in the yellow sections, and look for Nominal Payback, Discounte Dad Dennis Year Buy Investment Oper. Cash Out Oper. Cash In Sell Investment 0 $ (200) XXX XXX 1 XXX $ 100 XXX 2 XXX $ 100 XXX 3 XXX $ 100 XXX 4 XXX $ 100 XXX 5 XXX $ 100 $ - Sum $ (200) $ - $ 500 $ - Julie has 4 quadruplet brothers majoring in business - Nick, Joe, Kevin and Bob - who Nick Buy Investment Oper. Cash Out Oper. Cash In Sell Investment 0 $ (200) XXX XXX 1 XXX $ (30) $ 100 XXX 2 XXX $ (30) $ 100 XXX 3 XXX $ (30) $ 100 XXX 4 XXX $ (30) $ 100 XXX 5 XXX $ (30) $ 100 $ 25 Sum $ (200) $ (150) $ 500 $ 25 Julie is 5 years old and she's ready for a summer business. Julie's parents live across t visitors with some delicious lemonade. Julie's dad, Dennis, has put together a capital budget plan for Julie's proposed busines be made of painted wood and collapse easily for storage in the garage. The stand wil projects that Julie will make $100 each summer for 5 summers and that the stand wil return of 7% based on a WSJ article he read. Nick wants Julie to learn about costs and he thinks she should also pay for the drink m their Dad builds amazing wood projects and so the stand should sell for $25 at the en realistic for a seasonal business. Joe also wants Julie to learn about costs and he thinks she should pay for a premium d
Joe Buy Investment Oper. Cash Out Oper. Cash In Sell Investment 0 $ (250) XXX XXX 1 XXX $ (50) $ 150 XXX 2 XXX $ (50) $ 150 XXX 3 XXX $ (50) $ 150 XXX 4 XXX $ (50) $ 150 XXX 5 XXX $ (50) $ 150 $ 40 Sum $ (250) $ (250) $ 750 $ 40 Kevin Buy Investment Oper. Cash Out Oper. Cash In Sell Investment 0 $ (800) XXX XXX 1 XXX $ (40) $ 130 XXX 2 XXX $ (40) $ 130 XXX 3 XXX $ (40) $ 130 XXX 4 XXX $ (40) $ 130 XXX 5 XXX $ (40) $ 130 XXX 6 XXX $ (40) $ 130 XXX 7 XXX $ (40) $ 130 $ 100 Sum $ (800) $ (280) $ 910 $ 100 Bob Joe also wants Julie to learn about costs and he thinks she should pay for a premium d thinks that their Dad should include a drawer for cash in the stand, making the cost $ 5 years. Joe thinks a rate of return of 9% is realistic for a seasonal business, and that J of 6%. Kevin wants Julie to learn about costs, marketing and product strategy; he thinks she $40 and generate $130 in sales, per summer. Kevin likes the lemonade stand idea bu to $800. Kevin thinks Julie will stay interested in the project and run it for 7 years, no years. Kevin thinks a rate of return of 10% is realistic for a 7 year seasonal business. Bob admires Julie's initiative but he doesn't think she needs to sell lemonade at a stan Bob thinks that Julie should simply buy cases of bottled water (24 16-ounce bottles fo them for $1 each. Bob estimates that Julie should be able to sell 144 bottles of cold w year in years 2 through 5. Bob also estimates that a rate of return of 5% is fair since t an initial investment, the Payback and IRR calculations do not apply, but the NPV of th applicable.
Buy Investment Oper. Cash Out Oper. Cash In Sell Investment 0 XXX XXX 1 XXX $ (36) $ 144 XXX 2 XXX $ (38) $ 153 XXX 3 XXX $ (40) $ 162 XXX 4 XXX $ (43) $ 172 XXX 5 XXX $ (45) $ 182 $ - Sum $ - $ (202) $ 813 $ -
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ed Payback, Net Present Value and Internal Rate of Return NOMINAL 7% DIS Net Cashflow Cumulative Payback PV Factor @ Disc Net Cash Flow $ (200) $ (200) 1.0000 $ (200) $ 100 $ (100) NA 0.9346 $ 93 $ 100 $ - 2 0.8734 $ 87 $ 100 $ 100 2 0.8163 $ 82 $ 100 $ 200 2 0.7629 $ 76 $ 100 $ 300 2 0.7130 $ 71 $ 300 $ 300 Sum $ 210 have all studied Dad's capital budget and offered their own inputs. NOMINAL 8% DIS Net Cashflow Cumulative Payback PV Factor @ Disc Net Cash Flow $ (200) $ (200) 1.0000 $ (200) $ 70 $ (130) NA 0.9259 $ 65 $ 70 $ (60) NA 0.8573 $ 60 $ 70 $ 10 2.85714286 0.7938 $ 56 $ 70 $ 80 2.85714286 0.7350 $ 51 $ 95 $ 175 2.85714286 0.6806 $ 65 $ 175 $ 175 Sum $ 97 the street from their city's new dog park, and Julie wants to provide park ss. Dennis has projected that the upfront cost of the stand will be $200, it will ll have a counter and a storage bin for the ice chest for cups of ice. Dennis ll be worth nothing ($0) at the end of the 5 years. Dennis assumed a rate of mix she plans to use, which will cost $30 per summer. Nick also thinks that nd of Julie's lemonade career of 5 years. Nick thinks a rate of return of 8% is drink mix, which will cost $50 and generate sales of $150, per summer. Joe
NOMINAL 9% DIS Net Cashflow Cumulative Payback PV Factor @ Disc Net Cash Flow $ (250) $ (250) 1.0000 $ (250) $ 100 $ (150) NA 0.9174 $ 92 $ 100 $ (50) NA 0.8417 $ 84 $ 100 $ 50 2.5 0.7722 $ 77 $ 100 $ 150 2.5 0.7084 $ 71 $ 100 $ 250 2.5 0.6499 $ 65 $ 290 $ 290 Sum $ 139 NOMINAL 10% DIS Net Cashflow Cumulative Payback PV Factor @ Disc Net Cash Flow $ (800) $ (800) 1.0000 $ (800) $ 90 $ (710) NA 0.9091 $ 82 $ 90 $ (620) NA 0.8264 $ 74 $ 90 $ (530) NA 0.7513 $ 68 $ 90 $ (440) NA 0.6830 $ 61 $ 90 $ (350) NA 0.6209 $ 56 $ 90 $ (260) NA 0.5645 $ 51 $ 190 $ (70) NA 0.5132 $ 98 $ (70) $ (70) Sum $ (311) NOMINAL 5% DIS should offer both regular and premium lemonade mixes, which will average to ut wants Dad Dennis to hire a graphic artist to paint it , raising the project cost ot 5 years and that the stand and drawer will be worth $50 at the end of 7 nd, when most park visitors will want cold water for themselves and their dogs. or $6), chill them in the large refrigerator in the garage that is not used and sell water per summer for 5 years, growing her business by 6% compounded per there is no upfront investment needed. Since Bob's proposal does not require he cash flows discounted at Bob's recommended rate of return of 5% is
Net Cashflow Cumulative Payback PV Factor @ Disc Net Cash Flow $ - $ - 1.0000 $ - $ 108 $ 108 NA 0.9524 $ 103 $ 115 $ 223 NA 0.9070 $ 104 $ 122 $ 345 NA 0.8638 $ 105 $ 129 $ 474 NA 0.8227 $ 106 $ 137 $ 611 NA 0.7835 $ 107 $ 611 $ 611 Sum $ 526
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SCOUNTED Cumulative Payback $ (200) NPV 210.019744 (Sum of Disc Annual Net Cash Flows (H3 $ (107) NA $ (19) NA NPV $210 (Via Excel Formula =NPV(rate, data ran $ 62 2.235186 =NPV(.07,d4:d8)+d3 $ 139 2.235186 $ 210 2.235186 IRR 41% (Via Excel Formula =IRR(data range of N $ 210 SCOUNTED Cumulative Payback $ (200) NPV 96.5042825 (Sum of Disc Annual Net Cash Flows (H3 $ (135) NA $ (75) NA NPV $97 (Via Excel Formula =NPV(rate, data ran $ (20) NA =NPV(.07,d4:d8)+d3 $ 32 3.38099931 $ 97 3.38099931 IRR 24% (Via Excel Formula =IRR(data range of N $ 97
SCOUNTED Cumulative Payback $ (250) NPV 138.965126 (Sum of Disc Annual Net Cash Flows (H3 $ (158) NA $ (74) NA NPV $139 (Via Excel Formula =NPV(rate, data ran $ 3 2.9594725 =NPV(.07,d4:d8)+d3 $ 74 2.9594725 $ 139 2.9594725 IRR 29% (Via Excel Formula =IRR(data range of N $ 139 SCOUNTED Cumulative Payback $ (800) NPV -310.526495 (Sum of Disc Annual Net Cash Flows (H3 $ (718) NA $ (644) NA NPV ($311) (Via Excel Formula =NPV(rate, data ran $ (576) NA =NPV(.07,d4:d8)+d3 $ (515) NA $ (459) NA IRR -2% (Via Excel Formula =IRR(data range of N $ (408) NA $ (311) NA $ (311) SCOUNTED
Cumulative Payback $ - NPV 526.025424 (Sum of Disc Annual Net Cash Flows (H3 $ 103 NA $ 207 NA NPV $526 (Via Excel Formula =NPV(rate, data ran $ 313 NA =NPV(.07,d4:d8)+d3 $ 419 NA $ 526 NA IRR NA (Via Excel Formula =IRR(data range of N $ 526
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3:H8) nge of NOMINAL cash flows) + year 0 flows NOMINAL cash flows including year 0), .1) 3:H8) nge of NOMINAL cash flows) + year 0 flows NOMINAL cash flows including year 0), .1)
3:H8) nge of NOMINAL cash flows) + year 0 flows NOMINAL cash flows including year 0), .1) 3:H8) nge of NOMINAL cash flows) + year 0 flows NOMINAL cash flows including year 0), .1)
3:H8) nge of NOMINAL cash flows) + year 0 flows NOMINAL cash flows including year 0), .1)
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Julie's Lemonade Dad Dennis Year Buy Investment Oper. Cash Out Oper. Cash In Sell Investment 0 $ (200) XXX XXX 1 XXX $ 100 XXX 2 XXX $ 100 XXX 3 XXX $ 100 XXX 4 XXX $ 100 XXX 5 XXX $ 100 $ - Sum $ (200) $ - $ 500 $ - Julie has 4 quadruplet brothers majoring in business - Nick, Joe, Kevin and Bob - who Nick Buy Investment Oper. Cash Out Oper. Cash In Sell Investment 0 $ (200) XXX XXX 1 XXX $ (30) $ 100 XXX 2 XXX $ (30) $ 100 XXX 3 XXX $ (30) $ 100 XXX 4 XXX $ (30) $ 100 XXX 5 XXX $ (30) $ 100 $ 25 Sum $ (200) $ (150) $ 500 $ 25 Julie is 5 years old and she's ready for a summer business. Julie's parents live across t visitors with some delicious lemonade. Julie's dad, Dennis, has put together a capital budget plan for Julie's proposed busines be made of painted wood and collapse easily for storage in the garage. The stand wil projects that Julie will make $100 each summer for 5 summers and that the stand wil return of 7% based on a WSJ article he read. Nick wants Julie to learn about costs and he thinks she should also pay for the drink m their Dad builds amazing wood projects and so the stand should sell for $25 at the en realistic for a seasonal business. Joe also wants Julie to learn about costs and he thinks she should pay for a premium d thinks that their Dad should include a drawer for cash in the stand, making the cost $ 5 years. Joe thinks a rate of return of 9% is realistic for a seasonal business, and that J of 6%.
Joe Buy Investment Oper. Cash Out Oper. Cash In Sell Investment 0 $ (250) XXX XXX 1 XXX $ (50) $ 150 XXX 2 XXX $ (50) $ 150 XXX 3 XXX $ (50) $ 150 XXX 4 XXX $ (50) $ 150 XXX 5 XXX $ (50) $ 150 $ 40 Sum $ (250) $ (250) $ 750 $ 40 Kevin Buy Investment Oper. Cash Out Oper. Cash In Sell Investment 0 $ (800) XXX XXX 1 XXX $ (40) $ 130 XXX 2 XXX $ (40) $ 130 XXX 3 XXX $ (40) $ 130 XXX 4 XXX $ (40) $ 130 XXX 5 XXX $ (40) $ 130 XXX 6 XXX $ (40) $ 130 XXX 7 XXX $ (40) $ 130 $ 100 Sum $ (800) $ (280) $ 910 $ 100 Bob Buy Investment Oper. Cash Out Oper. Cash In Sell Investment 0 $ - XXX XXX 1 XXX $ (36) $ 144 XXX 2 XXX $ (38) $ 153 XXX Kevin wants Julie to learn about costs, marketing and product strategy; he thinks she $40 and generate $130 in sales, per summer. Kevin likes the lemonade stand idea bu to $800. Kevin thinks Julie will stay interested in the project and run it for 7 years, no years. Kevin thinks a rate of return of 10% is realistic for a 7 year seasonal business. Bob admires Julie's initiative but he doesn't think she needs to sell lemonade at a stan Bob thinks that Julie should simply buy cases of bottled water (24 16-ounce bottles fo them for $1 each. Bob estimates that Julie should be able to sell 144 bottles of cold w year in years 2 through 5. Bob also estimates that a rate of return of 5% is fair since t an initial investment, the Payback and IRR calculations do not apply, but the NPV of th applicable.
3 XXX $ (40) $ 162 XXX 4 XXX $ (43) $ 172 XXX 5 XXX $ (45) $ 182 $ - Sum $ - $ (203) $ 812 $ -
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NOMINAL 7% DIS Net Cashflow Cumulative Payback PV Factor @ Disc Net Cash Flow $ (200) $ (200) 1.0000 $ (200) $ 100 $ (100) NA 0.9346 $ 93 $ 100 $ - 2 0.8734 $ 87 $ 100 $ 100 2 0.8163 $ 82 $ 100 $ 200 2 0.7629 $ 76 $ 100 $ 300 2 0.7130 $ 71 $ 300 $ 300 Sum $ 210 have all studied Dad's capital budget and offered their own inputs. NOMINAL 8% DIS Net Cashflow Cumulative Payback PV Factor @ Disc Net Cash Flow $ (200) $ (200) 1.0000 $ (200) $ 70 $ (130) NA 0.9259 $ 65 $ 70 $ (60) NA 0.8573 $ 60 $ 70 $ 10 2.85714286 0.7938 $ 56 $ 70 $ 80 2.85714286 0.7350 $ 51 $ 95 $ 175 2.85714286 0.6806 $ 65 $ 175 $ 175 Sum $ 97 the street from their city's new dog park, and Julie wants to provide park ss. Dennis has projected that the upfront cost of the stand will be $200, it will ll have a counter and a storage bin for the ice chest for cups of ice. Dennis ll be worth nothing ($0) at the end of the 5 years. Dennis assumed a rate of mix she plans to use, which will cost $30 per summer. Nick also thinks that nd of Julie's lemonade career of 5 years. Nick thinks a rate of return of 8% is drink mix, which will cost $50 and generate sales of $150, per summer. Joe $250, and that the stand will sell for $40 at the end of Julie's lemonade career of Julie should finance the stand that Dad builds with a "loan" at an interest rate
NOMINAL 9% DIS Net Cashflow Cumulative Payback PV Factor @ Disc Net Cash Flow $ (250) $ (250) 1.0000 $ (250) $ 100 $ (150) NA 0.9174 $ 92 $ 100 $ (50) NA 0.8417 $ 84 $ 100 $ 50 2.5 0.7722 $ 77 $ 100 $ 150 2.5 0.7084 $ 71 $ 100 $ 250 2.5 0.6499 $ 65 $ 290 $ 290 Sum $ 139 NOMINAL 10% DIS Net Cashflow Cumulative Payback PV Factor @ Disc Net Cash Flow $ (800) $ (800) 1.0000 $ (800) $ 90 $ (710) NA 0.9091 $ 82 $ 90 $ (620) NA 0.8264 $ 74 $ 90 $ (530) NA 0.7513 $ 68 $ 90 $ (440) NA 0.6830 $ 61 $ 90 $ (350) NA 0.6209 $ 56 $ 90 $ (260) NA 0.5645 $ 51 $ 190 $ (70) NA 0.5132 $ 98 $ (70) $ (70) Sum $ (311) NOMINAL 5% DIS Net Cashflow Cumulative Payback PV Factor @ Disc Net Cash Flow $ - $ - 1.0000 $ - $ 108 $ 108 NA 0.9524 $ 103 $ 114 $ 222 NA 0.9070 $ 104 should offer both regular and premium lemonade mixes, which will average to ut wants Dad Dennis to hire a graphic artist to paint it , raising the project cost ot 5 years and that the stand and drawer will be worth $50 at the end of 7 nd, when most park visitors will want cold water for themselves and their dogs. or $6), chill them in the large refrigerator in the garage that is not used and sell water per summer for 5 years, growing her business by 6% compounded per there is no upfront investment needed. Since Bob's proposal does not require he cash flows discounted at Bob's recommended rate of return of 5% is
$ 121 $ 344 NA 0.8638 $ 105 $ 129 $ 472 NA 0.8227 $ 106 $ 136 $ 609 NA 0.7835 $ 107 $ 609 $ 609 Sum $ 524
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SCOUNTED Cumulative Payback $ (200) NPV 210.019744 (Sum of Disc Annual Net Cash Flows (H3 $ (107) NA $ (19) NA NPV $210 (Via Excel Formula =NPV(rate, data ran $ 62 2.235186 =NPV(.07,d4:d8)+d3 $ 139 2.235186 $ 210 2.235186 IRR 41% (Via Excel Formula =IRR(data range of N $ 210 SCOUNTED Cumulative Payback $ (200) NPV 96.5042825 (Sum of Disc Annual Net Cash Flows (H3 $ (135) NA $ (75) NA NPV $97 (Via Excel Formula =NPV(rate, data ran $ (20) NA =NPV(.07,d4:d8)+d3 $ 32 3.38099931 $ 97 3.38099931 IRR 24% (Via Excel Formula =IRR(data range of N $ 97
SCOUNTED Cumulative Payback $ (250) NPV 138.965126 (Sum of Disc Annual Net Cash Flows (H3 $ (158) NA $ (74) NA NPV $139 (Via Excel Formula =NPV(rate, data ran $ 3 2.9594725 =NPV(.07,d4:d8)+d3 $ 74 2.9594725 $ 139 2.9594725 IRR 29% (Via Excel Formula =IRR(data range of N $ 139 SCOUNTED Cumulative Payback $ (800) NPV -310.526495 (Sum of Disc Annual Net Cash Flows (H3 $ (718) NA $ (644) NA NPV ($311) (Via Excel Formula =NPV(rate, data ran $ (576) NA =NPV(.07,d4:d8)+d3 $ (515) NA $ (459) NA IRR -2% (Via Excel Formula =IRR(data range of N $ (408) NA $ (311) NA $ (311) SCOUNTED Cumulative Payback $ - NPV 524.175372 (Sum of Disc Annual Net Cash Flows (H3 $ 103 NA $ 207 NA NPV $524 (Via Excel Formula =NPV(rate, data ran
$ 312 NA =NPV(.07,d4:d8)+d3 $ 417 NA $ 524 NA IRR NA (Via Excel Formula =IRR(data range of N $ 524
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3:H8) nge of NOMINAL cash flows) + year 0 flows NOMINAL cash flows including year 0), .1) 3:H8) nge of NOMINAL cash flows) + year 0 flows NOMINAL cash flows including year 0), .1)
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3:H8) nge of NOMINAL cash flows) + year 0 flows NOMINAL cash flows including year 0), .1) 3:H8) nge of NOMINAL cash flows) + year 0 flows NOMINAL cash flows including year 0), .1) 3:H8) nge of NOMINAL cash flows) + year 0 flows
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NOMINAL cash flows including year 0), .1)
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Assignment 2 Instructions 1. Fill in all of the inputs in the yellow sections, including the number only for Discoun 2. Do not put inputs into cells with "XXX". 3. Do not change any other cell in the model, including formulas. 4. Review your work in the Summary block and export it to your Part B memo. Summary Scenario Make or Buy Nom. Payback Disc. Payback NPV Angela Make 2.392857142857 2.874892857143 $391,420 Bob Make 2.392857142857 2.874892857143 $410,048 Carl Make 2.392857142857 3.191747098214 $295,948 Delilah Make 2.392857142857 2.874892857143 $703,420 Edward Buy NA NA $184,509 Angela Year Buy Investment Oper. Cash Out Oper. Cash In Sell Investment 0 $ (700,000) $ 30,000 XXX XXX 1 XXX $ 30,000 $ 250,000 XXX 2 XXX $ 30,000 $ 250,000 XXX 3 XXX $ 30,000 $ 250,000 XXX 4 XXX $ 30,000 $ 250,000 XXX 5 XXX $ 30,000 $ 250,000 $ - Sum $ (700,000) $ 180,000 $ 1,250,000 $ - • The estimated purchase price for the equipment required to move the operation in $700,000. Additional net working capital to support production (in the form of cash u AR net of AP) would be needed in the amount of $30,000 per year starting in year 0 a years of the project to support production as raw materials will be required in year 0 run the new equipment and produce components to replace those purchased from th • The current spending on this component (i.e., annual spend pool) is $1,500,000. The cash flow savings of bringing the process in-house is 16.67%, or annual savings of $25 includes the additional labor and overhead costs required. • Finally, the equipment required is anticipated to have a somewhat short useful life, technology is on the horizon. Therefore, it is anticipated that the equipment will be so of the project (the last year of generated cash flow) for $30,000. (i.e., the terminal val Angela, your colleague from Accounting, recommends using the base assumptions ab project life, flat annual savings, and 10% discount rate. Angela does not feel the equip have any terminal value due to advancements in technology.
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Bob Year Buy Investment Oper. Cash Out Oper. Cash In Sell Investment 0 $ (700,000) $ 30,000 XXX XXX 1 XXX $ 30,000 $ 250,000 XXX 2 XXX $ 30,000 $ 250,000 XXX 3 XXX $ 30,000 $ 250,000 XXX 4 XXX $ 30,000 $ 250,000 XXX 5 XXX $ 30,000 $ 250,000 $ 30,000 Sum $ (700,000) $ 180,000 $ 1,250,000 $ 30,000 Carla Year Buy Investment Oper. Cash Out Oper. Cash In Sell Investment 0 $ (700,000) $ 30,000 XXX XXX 1 XXX $ 30,000 $ 250,000 XXX 2 XXX $ 30,000 $ 250,000 XXX 3 XXX $ 30,000 $ 250,000 XXX 4 XXX $ 30,000 $ 250,000 XXX 5 XXX $ 30,000 $ 250,000 $ 55,000 Sum $ (700,000) $ 180,000 $ 1,250,000 $ 55,000 Bob from Sales is convinced that this capability would create a new revenue stream th significantly offset operating expenses. He recommends savings that grow each year: project life, 10% discount rate, and a 10% annual savings growth in years 2 through 5. words, instead of assuming savings stay flat, assume that they will grow by 10% in yea grow another 10% over year 2 in year 3, and so on. Bob feels that the stated terminal $30,000 is reasonable and uses it in his calculations. Carla from Engineering believes we should use a higher Discount Rate because of the type of project. As such, she is recommending a 5-year project life and flat annual sav suggests that even though the equipment is brand new, the updated production proc anegative impact on other parts of the overall manufacturing costs. She argues that, w difficult to quantify the potential negative impacts, to account for the risk, a 15% disc should be used. As an engineer, Carla feels that the stated terminal value is low based experience and recommends a $55,000 terminal value.
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Delilah Year Buy Investment Oper. Cash Out Oper. Cash In Sell Investment 0 $ (700,000) $ 30,000 XXX XXX 1 XXX $ 30,000 $ 250,000 XXX 2 XXX $ 30,000 $ 250,000 XXX 3 XXX $ 30,000 $ 250,000 XXX 4 XXX $ 30,000 $ 250,000 XXX 5 XXX $ 30,000 $ 250,000 XXX 6 XXX $ 30,000 $ 250,000 XXX 7 XXX $ 30,000 $ 250,000 $ 20,000 Sum $ (700,000) $ 240,000 $ 1,750,000 $ 20,000 Edward Year Buy Investment Oper. Cash Out Oper. Cash In Sell Investment 0 XXX XXX 1 XXX $ 45,000 XXX 2 XXX $ 45,000 XXX 3 XXX $ 45,000 XXX 4 XXX $ 45,000 XXX 5 XXX $ 45,000 Sum $ - $ - $ 225,000 $ - Delilah, the Product Manager, is convinced the new capability will allow better quality on-time delivery and that it will last longer than 5 years. She recommends using a 7 Ye Equipment Life (which means a 7-year project and that savings will continue for 7 yea annual savings, and 10% discount rate. In other words, assume that the machine will years and deliver 2 more years of savings. Delilah also feels the equipment will have a terminal value of $20,000 at the end of its 7-year useful life as it will be utilized longe less value at the end of the project and savings. Edward, the head of Operations, is concerned that instead of stabilizing the supply ch add another process to be managed and will distract from the core competencies the currently has. He feels the company should focus on improving communication and s management with its current vendor, and he feels confident he can negotiate a disco the annual outsourcing cost of $1,500,000 if he lets it be known they are considering this step of the process. As there is little risk associated with Edward’s proposal due to capital requirements, a lower risk-free discount rate of 7% would be appropriate. Edw any price reductions from the current vendor will last for five years. (NOTE: because t "investment," the Payback and IRR metrics are not meaningful. Simply provide the NP Savings cash flows).
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nt Rate (no % needed). IRR 31% 32% 32% 37% NA Discount Rate NOMINAL 10% DIS Net Cashflow Cumulative Payback PV Factor @ Disc Net Cash Flow $ (670,000) $ (670,000) 1.0000 $ (670,000) $ 280,000 $ (390,000) NA 0.9091 $ 254,545 $ 280,000 $ (110,000) NA 0.8264 $ 231,405 $ 280,000 $ 170,000 2.39285714 0.7513 $ 210,368 $ 280,000 $ 450,000 2.39285714 0.6830 $ 191,244 $ 280,000 $ 730,000 2.39285714 0.6209 $ 173,858 $ 730,000 $ 730,000 Sum $ 391,420 n-house would be used in Inventory, and through all and all years to he vendor. e estimated 50,000. This , as a new wave of old after the end alue). bove: 5-year pment will
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Discount Rate NOMINAL 10% DIS Net Cashflow Cumulative Payback PV Factor @ Disc Net Cash Flow $ (670,000) $ (670,000) 1.0000 $ (670,000) $ 280,000 $ (390,000) NA 0.9091 $ 254,545 $ 280,000 $ (110,000) NA 0.8264 $ 231,405 $ 280,000 $ 170,000 2.39285714 0.7513 $ 210,368 $ 280,000 $ 450,000 2.39285714 0.6830 $ 191,244 $ 310,000 $ 760,000 2.39285714 0.6209 $ 192,486 $ 760,000 $ 760,000 Sum $ 410,048 Discount Rate NOMINAL 15% DIS Net Cashflow Cumulative Payback PV Factor @ Disc Net Cash Flow $ (670,000) $ (670,000) 1.0000 $ (670,000) $ 280,000 $ (390,000) NA 0.8696 $ 243,478 $ 280,000 $ (110,000) NA 0.7561 $ 211,720 $ 280,000 $ 170,000 2.39285714 0.6575 $ 184,105 $ 280,000 $ 450,000 2.39285714 0.5718 $ 160,091 $ 335,000 $ 785,000 2.39285714 0.4972 $ 166,554 $ 785,000 $ 785,000 Sum $ 295,948 hat could 5-year . Inother ar 2, then l value of e risk of this vings. Carla cess could have while it is count rate d on her
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Discount Rate NOMINAL 10% DIS Net Cashflow Cumulative Payback PV Factor @ Disc Net Cash Flow $ (670,000) $ (670,000) 1.0000 $ (670,000) $ 280,000 $ (390,000) NA 0.9091 $ 254,545 $ 280,000 $ (110,000) NA 0.8264 $ 231,405 $ 280,000 $ 170,000 2.39285714 0.7513 $ 210,368 $ 280,000 $ 450,000 2.39285714 0.6830 $ 191,244 $ 280,000 $ 730,000 2.39285714 0.6209 $ 173,858 $ 280,000 $ 1,010,000 2.39285714 0.5645 $ 158,053 $ 300,000 $ 1,310,000 2.39285714 0.5132 $ 153,947 $ 1,310,000 $ 1,310,000 Sum $ 703,420 Discount Rate NOMINAL 7% DIS Net Cashflow Cumulative Payback PV Factor @ Disc Net Cash Flow $ - $ - 1.0000 $ - $ 45,000 $ 45,000 NA 0.9346 $ 42,056 $ 45,000 $ 90,000 NA 0.8734 $ 39,305 $ 45,000 $ 135,000 NA 0.8163 $ 36,733 $ 45,000 $ 180,000 NA 0.7629 $ 34,330 $ 45,000 $ 225,000 NA 0.7130 $ 32,084 $ 225,000 $ 225,000 Sum $ 184,509 hain, it will just e company supply chain ount of 3% off taking over o no upfront ward feels that there is no PV of the
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SCOUNTED Cumulative Payback $ (670,000) NPV 391420.295 (Sum of Disc Annual Net Cash Flows (H3 $ (415,455) NA $ (184,050) NA NPV $391,420 (Via Excel Formula =NPV(rate, data ran $ 26,319 2.87489286 =NPV(.07,d4:d8)+d3 $ 217,562 2.87489286 $ 391,420 2.87489286 IRR 31% (Via Excel Formula =IRR(data range of N $ 391,420
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SCOUNTED Cumulative Payback $ (670,000) NPV 410047.935 (Sum of Disc Annual Net Cash Flows (H3 $ (415,455) NA $ (184,050) NA NPV $410,048 (Via Excel Formula =NPV(rate, data ran $ 26,319 2.87489286 =NPV(.07,d4:d8)+d3 $ 217,562 2.87489286 $ 410,048 2.87489286 IRR 32% (Via Excel Formula =IRR(data range of N $ 410,048 SCOUNTED Cumulative Payback $ (670,000) NPV 295948.148 (Sum of Disc Annual Net Cash Flows (H3 $ (426,522) NA $ (214,802) NA NPV $295,948 (Via Excel Formula =NPV(rate, data ran $ (30,697) NA =NPV(.07,d4:d8)+d3 $ 129,394 3.1917471 $ 295,948 3.1917471 IRR 32% (Via Excel Formula =IRR(data range of N $ 295,948
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SCOUNTED Cumulative Payback $ (670,000) NPV 703420.431 (Sum of Disc Annual Net Cash Flows (H3 $ (415,455) NA $ (184,050) NA NPV $703,420 (Via Excel Formula =NPV(rate, data ran $ 26,319 2.87489286 =NPV(.07,d4:d8)+d3 $ 217,562 2.87489286 $ 391,420 2.87489286 IRR 37% (Via Excel Formula =IRR(data range of N $ 549,473 2.87489286 $ 703,420 2.87489286 $ 703,420 SCOUNTED Cumulative Payback $ - NPV 184508.885 (Sum of Disc Annual Net Cash Flows (H3 $ 42,056 NA $ 81,361 NA NPV $184,509 (Via Excel Formula =NPV(rate, data ran $ 118,094 NA =NPV(.07,d4:d8)+d3 $ 152,425 NA $ 184,509 NA IRR NA (Via Excel Formula =IRR(data range of N $ 184,509
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3:H8) nge of NOMINAL cash flows) + year 0 flows NOMINAL cash flows including year 0), .1)
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3:H8) nge of NOMINAL cash flows) + year 0 flows NOMINAL cash flows including year 0), .1) 3:H8) nge of NOMINAL cash flows) + year 0 flows NOMINAL cash flows including year 0), .1)
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3:H8) nge of NOMINAL cash flows) + year 0 flows NOMINAL cash flows including year 0), .1) 3:H8) nge of NOMINAL cash flows) + year 0 flows NOMINAL cash flows including year 0), .1)
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