MGT 325 Module 6 Spreadsheet Part A B C

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MGT 325 Module 6 Spreadsheet Part A B C
MGT 325 Module 6 Part A
You should prepare Part A first, following the instructions under the Required section of the worksheet below.
Then, follow the instructions given for Parts B and C (sheets B and C below) on the separate attached worksheets for Parts B and C.
COMPREHENSIVE CHAPTER 12 & 13 PROBLEMS
MONARCH CORPORATION IS GOING TO START A NEW PRODUCT LINE OF PRODUCTS IN A WHOLE NEW MARKET.
THE DATA FOR ANALYSIS IS PRESENTED BELOW:
COST OF THE EQUIPMENT NEEDED $194,000 FIVE YEAR PROPERTY FOR TAX DEPRECIATION
NEW WORKING CAPITAL NEEDS $50,000 WILL BE RECOVERED AT THE END OF THE THIRD YEAR
PROJECTED NEW REVENUES:
SALES PROBABILITY
$200,000 30%
$250,000 50%
$300,000 20%
COST OF GOOD SOLD 30% OF SALES
VARIABLE CASH COSTS 10% OF SALES
ANNUAL FIXED CASH COSTS:
RENT $50,000
CLEANING $20,000
MAINTENANCE & OTHER $10,000
TOTAL FIXED COSTS $80,000
EQUIPMENT DISPOSAL PROCEEDS $19,400 SALVAGE VALUE AT THE END OF YEAR 6
FIRM’S COST OF CAPITAL 12.00%
TAX RATE 35%
NOTE – WHEN COMPUTING TAX, A NET LOSS FOR THE YEAR MEANS A POSITIVE TAX SAVINGS IS CREATED
SINCE THERE IS OTHER INCOME TAX ON OTHER INCOME TO OFFSET.
DEPRECIATION RATES FOR TAX PURPOSES:
YEAR ONE 20.00%
YEAR TWO 32.00%
YEAR THREE 19.20%
YEAR FOUR 11.50%
YEAR FIVE 11.50%
YEAR SIX 5.80%
ASSUMPTIONS:
ALL CASH FLOWS IN YEARS 1-6 OCCUR AT THE END OF THE YEAR. ALL INITIAL CASH INFLOWS OR
OUTFLOWS OCCUR TODAY.
REQUIRED:
A. ASSUMING SALES ARE $200,000 COMPUTE THE PAYBACK, IRR AND NPV. FOR THE NPV, COMPUTE
AT BOTH THE FIRM’S DISCOUNT RATE AND 16%, WHICH IS A 4% PREMIUM ADDED TO THE RATE.
B. COPY THE WHOLE WORKSHEET AND SOLUTIONS FOR PART A TO THE WORKSHEET NAMED PART B,
AND REDO THE COMPUTATIONS BY CHANGING THE ANNUAL SALES TO $250,000.
C. COPY THE WHOLE WORKSHEET AND SOLUTIONS FOR PART A TO THE WORKSHEET NAMED PART C,
AND REDO THE COMPUTATIONS BY CHANGING THE ANNUAL SALES TO $300,000.
You should place your answers in each of the boxes shown below color-coded in Yellow color.
PART A
YEARS 0 1 2 3 4 5 6
INITIAL INVESTMENT (NO INCOME TAX AFFECTS)
COST OF THE EQUIPMENT NEEDED $
WORKING CAPITAL NEEDS
TOTAL INITIAL INVESTMENT
ANNUAL OPERATING RECEIPTS: (using the information given above, fill in the blanks below to determine each year’s operating cash flow):
SALES $ $ $ $ $ $
LESS COST OF GOODS SOLD
GROSS PROFIT
LESS VARIABLE COSTS
LESS FIXED COSTS
LESS DEPRECIATION EXPENSE
PROFIT (LOSS) BEFORE TAX
LESS INCOME TAX EXPENSE (BENEFIT)
PROFIT (LOSS) AFTER TAX
PLUS DEPRECIATION EXPENSE
TOTAL OPERATING CASH INFLOWS $ $ $ $ $ $
SALVAGE VALUE ON EQUIPMENT: (figure out the salvage value of the equipment for tax purposes):
PROCEEDS $
LESS TAX BASIS OF EQUIPMENT:
COST
ACCUMULATED DEPRECIATION
TAX BASIS
GAIN ON SALVAGE
LESS INCOME TAX ON SALVAGE GAIN
NET PROCEEDS ON SALVAGE AFTER TAXES $
RELEASE OF ORIGINAL WORKING CAPITAL NEEDS (NO TAX AFFECT) $
TOTAL CASH INFLOWS (OUTFLOWS)
CUMULATIVE CASH INFLOWS (OUTFLOWS)
THREE METHODS OF EVALUATION:
PAYBACK PERIOD YEARS (round to 2 decimal places).
INTERNAL RATE OF RETURN Answer is in %-2 decimal places please.
NET PRESENT VALUE AT 12.00% Answer is in $-round answer to nearest dollar.
NET PRESENT VALUE AT 16.00% Answer is in $-round answer to nearest dollar.
On each worksheet, calculating the correct Payback Period, Internal Rate of Return, NPV at 12%, and NPV at 16% is worth 2.5 points each (10 points each for Parts A, B, and C).
The other 23 points of credit which can be earned in each worksheet (Parts A, B, and C) include credit for calculating and filling out correctly the following yellowed-out areas:
â?¢the Initial Investment Amounts;
â?¢the Total Operatiing Cash Inflow Amounts;
â?¢the Net Proceeds on Salvage Value After Taxes;
â?¢the correct amount for the Release of Working Capital Needs; and
â?¢ the correct amounts in the rows Total Cash Inflows (Outflows) and Cumulative Cash Inflows (Outflows).


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