(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




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




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




(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.


Solution details:

This question was answered on: May 23, 2022

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May 23, 2022





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