Problem Six Use excel 123 Inc. is considering purchasing a new machine. The machine will cost $2,500,000....

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Finance

Problem Six
Use excel
123 Inc. is considering purchasing a new machine. The machinewill cost $2,500,000. The machine will be used for a project thatlasts 4 years. The expected salvage of the machine at the end ofthe project is $200,000. The machine will be used to producewidgets. The marketing department has forecasted that the companywill be able to sell 180,000 widgets per year. The marketingdepartment believes that the company will be able to charge $12 perwidget. The production department, has indicated that the variablecost per widget will be $5. The company has forecasted that theincremental fixed costs associated with the project are $80,000.The company believes that the project will require an initialinvestment in operating net working capital of $60,000. Thereafter,the investment in operating net working capital will be 10% ofsales.
The CCA rate is 30%, the tax rate is 26%, and the required rateof return is 10%.
Using net present value (NPV) calculation, determine if thecompany should purchase the new machine. Show all work.
Your boss has a number of concerns regarding the project.Therefore, she has asked you to determine the number of units thatthe company must sell each year for the NPV to be greater thanzero.
Your boss has also asked you to determine which input (unitssold, price per unit, variable cost per unit, or fixed cost) hasthe greatest forecasting risk. Therefore, your boss has asked youto do a sensitivity analysis. Your boss wants you to vary the inputforecast by 10% and determine the impact on the NPV of the project.Based on this analysis you are to determine which input has thegreatest forecasting risk.
Finally, your boss has asked you to perform a scenarioanalysis. Therefore, your boss has asked to include two newscenarios. A pessimistic scenario and an optimistic scenario. Yourboss wishes to know the NPV of the project under these twoadditional scenarios. The value of the inputs for each scenario areshown in the table below.
Pessimistic
Optimistic
Units sold
125,000
200,000
Price per unit
$10
$15
Variable cost per unit
$7
$4
Fixed Cost
$120,000
$60,000

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Problem Six Use excel123 Inc. is considering purchasing a new machine. The machinewill cost $2,500,000. The machine will be used for a project thatlasts 4 years. The expected salvage of the machine at the end ofthe project is $200,000. The machine will be used to producewidgets. The marketing department has forecasted that the companywill be able to sell 180,000 widgets per year. The marketingdepartment believes that the company will be able to charge $12 perwidget. The production department, has indicated that the variablecost per widget will be $5. The company has forecasted that theincremental fixed costs associated with the project are $80,000.The company believes that the project will require an initialinvestment in operating net working capital of $60,000. Thereafter,the investment in operating net working capital will be 10% ofsales.The CCA rate is 30%, the tax rate is 26%, and the required rateof return is 10%.Using net present value (NPV) calculation, determine if thecompany should purchase the new machine. Show all work.Your boss has a number of concerns regarding the project.Therefore, she has asked you to determine the number of units thatthe company must sell each year for the NPV to be greater thanzero.Your boss has also asked you to determine which input (unitssold, price per unit, variable cost per unit, or fixed cost) hasthe greatest forecasting risk. Therefore, your boss has asked youto do a sensitivity analysis. Your boss wants you to vary the inputforecast by 10% and determine the impact on the NPV of the project.Based on this analysis you are to determine which input has thegreatest forecasting risk.Finally, your boss has asked you to perform a scenarioanalysis. Therefore, your boss has asked to include two newscenarios. A pessimistic scenario and an optimistic scenario. Yourboss wishes to know the NPV of the project under these twoadditional scenarios. The value of the inputs for each scenario areshown in the table below.PessimisticOptimisticUnits sold125,000200,000Price per unit$10$15Variable cost per unit$7$4Fixed Cost$120,000$60,000

	Pessimistic	Optimistic
Units sold	125,000	200,000
Price per unit	$10	$15
Variable cost per unit	$7	$4
Fixed Cost	$120,000	$60,000