23 Jul WHAT WOULD THE NPV BE UNDER EACH OF THESE SITUATIONS?
Holmes Manufacturing is considering a new machine that costs $250000 and would Show more New project analysis Holmes Manufacturing is considering a new machine that costs $250000 and would reduce pretax manufacturing costs by $90000 annually. Holmes would use the 3-year MACRS method to depreciate the machine and management thinks the machine would have a value of $23000 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 $25000 initially but it would be recovered at the end of the projects 5-year life. Holmes marginal tax rate is 40% and a 10% WACC is appropriate for the project. A. Calculate the projects NPV. Round your answer to the nearest cent. $ _____ Calculate the projects IRR. Round your answer to two decimal places. _____% Calculate the projects MIRR. Round your answer to two decimal places. _____% Calculate the projects payback. Round your answer to two decimal places. _____years B. Assume management is unsure about the $90000 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 machines salvage value and the net operating working capital (NOWC) requirement. She asks you to use the following probabilities and values in the scenario analysis: Scenario Probability Cost Savings Salvage Value NOWC Worst case 0.35 $72000 $18000 $30000 Base case 0.35 $90000 $23000 $25000 Best case 0.30 $108000 $28000 $20000 Calculate the projects 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 Show less
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