Problem 11-12
New-Project Analysis

Madison Manufacturing is considering a new machine that costs$350,000 and would reduce pre-tax manufacturing costs by $110,000annually. Madison would use the 3-year MACRS method to depreciatethe machine, and management thinks the machine would have a valueof $33,000 at the end of its 5-year operating life. The applicabledepreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. Workingcapital would increase by $35,000 initially, but it would berecovered at the end of the project's 5-year life. Madison'smarginal tax rate is 40%, and a 10% cost of capital is appropriatefor the project.

1. Calculate the project's NPV. Round your answer to the nearestdollar.
   $  
   Calculate the project's IRR. Round your answer to two decimalplaces.
        %
   Calculate the project's MIRR. Round your answer to two decimalplaces.
        %
   Calculate the project's payback. Round your answer to two decimalplaces.
        
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5. Assume management is unsure about the $110,000 cost savings -this figure could deviate by as much as plus or minus 20%.Calculate the NPV if cost savings value deviate by plus 20%. Roundyour answer to the nearest dollar.
   $  
   Calculate the NPV if cost savings value deviate by minus 20%. Roundyour answer to the nearest dollar.
   $
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9. Suppose the CFO wants you to do a scenario analysis withdifferent values for the cost savings, the machine's salvage value,and the working capital (WC) requirement. She asks you to use thefollowing probabilities and values in the scenario analysis:

   Scenario	Probability	Cost Savings	Salvage Value	WC
   Worst case	0.35	$  88,000	$28,000	$40,000
   Base case	0.35	110,000	33,000	35,000
   Best case	0.30	132,000	38,000	30,000

   
   Calculate the project's expected NPV. Round your answer to thenearest dollar.
   $  
   Calculate the project's standard deviation. Round your answer tothe nearest dollar.
   $  
   Calculate the project's coefficient of variation. Round your answerto two decimal places.