Reference no: EM13154396

Margarite's Enterprises is considering a new project. The project will require $325,000 
for new fixed assets, $160,000 for additional inventory and $35,000 for additional accounts receivable. Accounts payable are expected to increase by $100,000. The project has a 5-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 25 percent of their original cost. The net working capital returns to its original level at the end of the project. The project is expected to generate sales of $554,000 and costs of $430,000 in the first year, and both the sales and the costs are expected to grow by 5% each year thereafter. The tax rate is 35 percent and the required rate of return is 15 percent. Answer the following questions using Excel (or a similar alternative such as google spreadsheet). Importantly, in your spreadsheet, use cell references to input data and use built-in formulas whenever possible. 


1. Calculate CFFA for each year of the project.

2. Evaluate the following investment criteria: NPV, IRR, Payback Period, Discounted Payback Period, Average Accounting Return, and Profitability Index. Show both the result and the Excel formula you used to obtain the result. Discuss whether you would or would not accept the project based on NPV and IRR.