(Solution) 12-5-Huang Industries Is Considering A Proposed Project Whose Estimated NPV Is $12 Million. This Estimate Assumes That Economic Conditions Will Be... | Snapessays.com


(Solution) 12-5-Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be...


please I need answer on excel spread sheet and solution step by step.thank you.please see the attachment12-5-Huang Industries is considering a proposed project whose estimated

 

NPV is $12 million. This estimate assumes that economic conditions will be

 

“average.”

 

However, the CFO realizes that conditions could be better or worse, so she

 

performed a

 

scenario analysis and obtained these results:

 

Economic Scenario Probability of Outcome NPV

 

Recession 0.05 ($70 million)

 

Below average 0.20 (25 million)

 

Average 0.50 12 million

 

Above average 0.20 20 million

 

Boom 0.05 30 million

 

Calculate the project’s expected NPV, standard deviation, and coe±cient of

 

variation.

 

12-7 - You must evaluate a proposal to buy a new milling machine. The

 

base price is $108,000, and shipping and installation costs would add

 

another $12,500.

 

The machine falls into the MACRS 3-year class, and it would be sold after 3

 

years for

 

$65,000. The applicable depreciation rates are 33, 45, 15, and 7 percent as

 

discussed in

 

Appendix 12A. The machine would require a $5,500 increase in working

 

capital

 

(increased inventory less increased accounts payable). There would be no

 

e²ect on

 

revenues, but pre-tax labor costs would decline by $44,000 per year. The

 

marginal tax

 

rate is 35 percent, and the WACC is 12 percent. Also, the ³rm spent $5,000

 

last year

 

investigating the feasibility of using the machine.

 

a. How should the $5,000 spent last year be handled?

 

b. What is the net cost of the machine for capital budgeting purposes, that is,

 

the Year 0

 

project cash ´ow?

 

c. What are the net operating cash ´ows during Years 1, 2, and 3?

 

d. What is the terminal year cash ´ow?

 

e. Should the machine be purchased? Explain your answer.

 


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This question was answered on: May 23, 2022

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