Question

References Mailings Review View Help Grammarly Tell me what you want to do You-Bee Enterprises, Inc. is considering a new three-year expansion project with the relevant cash flows below. (70 points) 4. Calculate the project's NPV and IRR. Should You-Bee accept or reject this project based on your calculations? Please use the Excel template provided to answer this problem. The required return is 12 %. The tax rate is 21%. The project requires an initial fixed asset investment of $2.32 million, and the fixed asset will have a market value of $180,000 at the end of the project (salvage value). The fixed asset falls into the three-year MACRS class. [This is the fixed asset part of the cash flow.] The project is estimated to generate $1.735 million in annual sales, with costs of $650,000. [This is the OCE part of cash flow.] The project requires an initial investment in net working capital of $250,000, which will be fully recovered at the end of the project. [This is the change in net working capital part of cash flow.] Note: the Excel template provides a step-by-step analysis to accepting or rejecting this project. The first spreadsheet calculates the depreciation using MACRS. Then the pro forma income statement calculates the projected net income for the project for the three years of the life of the project. Then the projected cash flows spreadsheet

Answer 1

NPV = 162,570.38; IRR = 15.47%

3-year MACRS schedule:

Formula BVn-1 - Dn 2320000 171912 Year (n) Book value (BV) Depreciation rate ('r) Depreciation (D) 1546744 33.33% 773256 515504 44.45% 1031240 14.81% 343592 7.41% 171912 BVO*r

NPV calculation:

Formula 1 2 3 2320000 S-C-D 21% EBIT EBIT-Tax Year (n) Initial investment (11) Sales (S) Costs (C) Depreciation (D) EBIT Tax @ 21% Net Income (NI) Add: Depreciation (D) Operating Cash Flow (OCF) Increase in NWC Book value (BV) Salvage value (SV) After-tax salvage value (ASV) Free Cash Flow (FCF) Discount factor @ 12% PV of FCF NPV IRR 1735000 6500001 773256 311744 65466.24 246277.76 773256 1019533.76 1735000 650000 1031240 53760 11289.6 42470.4 1031240 1073710.4 NI+D 1735000 650000 343592 7414081 155695.68 585712.32 3 43592 929304.32 250000 171912 180000 178301.52 1357605.84 0.712 966317.02 -250000 From the MACRS schedule SV -21%*(SV-BV) OCF - Inc. in NWC + ASV - || 1/(1+12%)^n FCF*Discount factor Sum of all PVs IRR function with FCFS -2570000 1.000 -2570000 162570.38 15.47% 1019533.76 0.893 910298.00 1073710.4 0.7971 855955.36

Note: The required excel template mentioned in the question has not been provided. Please use the above table and modify accordingly.