(a) Develop proforma Project Income Statement Using Excel Spreadsheet (b) Compute Net Project Cash flows, NPV, IRR and PayBack Period (c) Develop Problem-Solving and Cnitical Thinking Skill 1) Life Period of the Equipment 4 years 2) New equipment cost 3) Equipment ship & install cost 4) Related start up cost 5) Inventory increase ) Accounts Payable increase Equip. Salvage Value Estimated End of Year-(fully depreciated 8) Sales for first year(1) 200,000 (120,000) 000) (200,000) 91 Sales increase per year $ (35,000) 10) Operating cost (5,000) (60 Percent of Sales) 25,000 11) Depreciation (Straight LineYR 5,000 12) Tax rate 15,000 13) Cost of Capital OACC) ESTIMATING 0day eCash Flow, CFo, T. 09 CFO CFI CF2 CF3 CF4 Equipment cos 2) Shipping and Install cost 3) Start up expensers Total Basis Cost (1 2+3) 4) Net Working Capital Inventory Inc-Acct. Payable Inc Total Iinitial Oulay Operating Cost Taxes Net Income (LOSS) OOOCX 200OOK TAX SHIELD DUE TO LOSS Add back Depreciation Total Operating Cash Flow 1) Release of Working Capital 2) Salvage value (afler tax 20000 Total NPV COST of CAPITAL (WACC) or DISCOUNT RATE OF THE PROECT Q#1 10% Would you accept the project based on NPV, IRR? Would you accept the project based on Payback nle period is 3 years? project cut-o" 02 SENSITIVITY and SCENARIO ANALYIS Capital Budgeting Investment) Decisions Estate NPV,IRR and Payback Penod ofthe pro K1fMargral Corporate Tax is reduced to20%. Would you accept or repect the pred? Assume Straight Line Depreciation. Estimate NPV, IRR and Payback Period of the project Equipment is fully depreciatedinfirst year and tax rate reduced to3%, would you accept or reject the project? As a CFO of the firm, which of the above two scenario (a) or (b) would you choose? Why Q#3 How would you explain to your CEO what NPV means? Q4 What are advantages and disadvantages of using only Payback methoo? Q#5 What are advantages and disadvan es of using NPV versus IRR