FINC615 NPV-IRR IP 4-1 “Do we have everything we need on sales and costs?” you ask. ”It must be time to

| October 22, 2018

FINC615
NPV-IRR IP 4-1
“Do we have everything we need on
sales and costs?” you ask. ”It must be time to compute the net present value
(NPV) and internal rate of return (IRR) of the Apix expansion project.”
“We have the data from James and
Luke regarding projected sales and costs,
respectively, for the food packaging project,” says Mary. “It is feasible to
project that we will receive a tax break from this implementation. I have
information from our audit firm that indicates that future depreciation methods
for taxes will be straight-line; however, the corporate rates will be reduced
to 35% as we assumed in our weighted average cost of capital (WACC)
calculation.”
“That sounds good,” you say.
“Right,” says Mary. “You
can use a WACC of 10% for the computation of the NPV and comparison for
IRR.”
“I’ve got the information I need
from Luke and James,” you say. “Does this look right to you? Here’s what
they gave me,” you say, as you hand a sheet of paper to Mary.
“Let’s look at this now while
we’re together,” she says.
The information you hand to Mary shows
the following:
Initial investment outlay of $30
million, consisting of $25 million for equipment and $5 million for net working
capital (NWC) (plastic substrate and ink inventory); NWC recoverable in
terminal year
Project and equipment life: 5
years
Sales: $25 million per year for
five years Assume gross margin of 60% (exclusive of depreciation)
Depreciation: Straight-line for
tax purposes Selling, general, and administrative expenses: 10% of sales Tax
rate: 35%
You continue your conversation.
“It looks good,” says Mary. “Use
this information from Luke and James to compute the cash flows for the
project.”
“No problem,” you say.
“Then, compute NPV and IRR of the project
using the Excel spreadsheet I sent earlier today,” says Mary. “Use the IRR
financial function for the computation of IRR.”
“Okay,” you say. “I’ll submit
my Excel file showing the computation of cash flows, NPV, and IRR by the end of
week so you can look at it over the weekend.”
“Thanks,” says Mary.
Complete the above worksheet for
this assignment.
 TEMPLATE
FIN 615
NPV and IRR calculations
Cost of
Capital

10.00%

Time/yr

0

1

2

3

4

5

Cash
flow Input here

Discounted
CF

0

0

0

0

0

0

NPV

0

=cf1/((1+n)^1)

=cf2/((1+n)^2)

=cf3/((1+n)^3)

=cf4/((1+n)^4)

=cf5/((1+n)^5)

PV
factor

0.909090909

0.826446281

0.751314801

0.683013455

0.620921323

IRR

#NUM!

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