PLEASE SHOW WORK New project analysis Holmes Manufacturing is considering a new

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PLEASE SHOW WORK

New project analysis

Holmes Manufacturing is considering a new machine that costs $250,000 and would reduce pretax manufacturing costs by $90,000 annually. Holmes would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $25,000 at the end of its 5-year operating life. The applicable depreciation rates are 33%, 45%, 15%, and 7%. Net operating working capital would increase by $25,000 initially, but it would be recovered at the end of the project's 5-year life. Holmes' marginal tax rate is 40%, and a 13% WACC is appropriate for the project.

a. Calculate the project's NPV. Round your answer to the nearest cent.

$___________________

Calculate the project's IRR. Round your answer to two decimal places.

__________________%

Calculate the project's MIRR. Round your answer to two decimal places.

__________________%

Calculate the project's payback. Round your answer to two decimal places.

__________________years

b. Assume management is unsure about the $90,000 cost savings-this figure could deviate by as much as plus or minus 20%. What would the NPV be under each of these situations? Round your answers to the nearest cent.

20% savings increase $______________________

20% savings decrease $____________________

c. Suppose the CFO wants you to do a scenario analysis with different values for the cost savings, the machine's salvage value, and the net operating working capital (NOWC) requirement. She asks you to use the following probabilities and values in the scenario analysis:

Calculate the project's expected NPV, its standard deviation, and its coefficient of variation. Round your answers to two decimal places.

E(NPV)= $____________________

NPV = $________________________

CV=__________________________

Would you recommend that the project be accepted?

Yes or No

Scenario Probability Cost Savings Salvage Value NOWC Worst case 0.35 $72,000 $20,000 $30,000 Base case 0.35 $90,000 $25,000 $25,000 Best case 0.30 $108,000 $30,000 $20,000

Explanation / Answer

Year saving Depreciation net profit tax profit after tax depreciation cash flow present value factor Present Value 1 90,000 74250 15,750 6,300 9,450 74250 83,700 0.885 74,075 2 90,000 101250 -11,250 -   -11,250 101250 90,000 0.783 70,470 3 90,000 33750 56,250 22,500 33,750 33750 67,500 0.693 46,778 4 90,000 15750 74,250 29,700 44,550 15750 60,300 0.613 36,964 5 90,000 0 90,000 36,000 54,000 0 54,000 0.543 29,322 5 Working capital 25,000 0.543 13,575 5 salvage value 25,000 0.543                 13,575 present value of cash inflow 2,84,758 initial invest 2,50,000 working capital 25,000 net present value 9,758

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