4,5,6? Please assist with simplification And solution, can’t figure it out e, Ph

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4,5,6? Please assist with simplification And solution, can’t figure it out e, Phone and Internet Service $115/month f. Product Supplies- $9,000 g. Shipping Fees - $1,000/month h. Conference Exhibitor Fee = $3,000 i. Travel Expenses for Conference (e.g. airfare, meals, taxi)-$1,200 j. Utilities for the Home Workshop $105/month 4. Net Present Value: The Lees are considering adding a new piece of equipment that will speed up the process of building the bobble heads. The cost of the piece of equipment is $42,000. It is expected that the new piece of equipment will lead to cash flows of $17,000, $29,00o, and $40,000 over the next 3 years. If the appropriate discount rate is 12%, what is the NPV of this investment? Explain the findings. Budget Preparation: The Lees believe that there production could quadruple in one month after being on Shark Tank. They want to be prepared for this. Based on the monthly budget calculated above, create a new monthly budget for quadrupled production. Assume that 7 0 units were produced in the first budget and 280 units will be produced per month with the new budget Incremental Analysis: If production does increase dramatically after their presentation on Shar Tank, the Lees will need more space for production. They have two options. Option 1 is to rent out a spacious warehouse nearby. If they pursue this option, there rent will be $1,200 per month and utilities are estimated to cost an additional $350 per month. Their second option Option 2, is to rent a smaller storefront space that is also nearby. The storefront rent is $1350 per month. However, utilities will likely only cost an additional $150 per month. They want to compare their options over one year's time (since each rental contract is a 1 year commitmert What is the incremental analysis if the Lees choose Option 1 over Option 2? Break-Even Analysis You haye heen asked to calculate how manuunit

Explanation / Answer

Okay so we are required here to calculate the NPV of this new machine that Lees is considering. The NPV or Net Present Value is calculated by adding the discounted cash inflows and subtracting the discounted outflows from that.

In this case, there will only be a single outflow of $42,000, which will be in the current year so there will be no need to discount that. After which there will be 3 recurring cash flows during the life of this new machine, which we will have to discount to the current year at 12%. This can be mathematically expressed as follows:

NPV = -$42,000 + $17,000*(1+12%)^1 + $29,000*(1+12%)^2 + $40,000*(1+12%)^3.

That is the standard formula for calculating NPV.

If we simplify it further, this equation will look like the following:

NPV = -$42,000 + $17,000*0.8929 + $29,000*0.7972 + $40,000*0.7118,

NPV = -$42,000 + $15,178.57 + $23,118.62 + $28,471.21 or,

NPV = $26,768.40.

Since the Machinery has a positive NPV, it should be installed.

The Positive NPV denotes that the machine will not only recover its cost, but in terms of the current value of money, it will return a profit of $26,768.40 over its life.

Hope that helped!

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