Reference no: EM131835457

The PL Corporation that sells Golden Tator Totts has come up with a new recipe to make better totts. In order to produce them, the company needs to replace an existing old machine with a new one that costs $240,000 (including shipping and handling). The old machine has been fully depreciated and the new one would be depreciated on a straifght line basis over is estimated full life of 15 years. if the decision is made to go ahead with the project the old machine will be sold for $12,000. Annual revenues (sales) are expected to be $120,000, operating costs (including cogs but excluding depreciation)$43,000. the operating profits (EBIT) from the old machine are 8000 per year. the company estimates the actual productive life of the project at 10 years, after which the machine would be sold for a salvage value of $100,000. the initial net working capital needed for the expanded operations are estimated at $32,000. No changes in NWC are expected for the first seven years of the projects life. the nwc at the end of year 8 would be reduced to $26,000, then to $17,000 by the end of year 9 before its fully recovered at the end of year 10. the way the company made all these estimates is by conducting a technical and economic feasibilty study that cost $35,000. it also cost $15,000 to develop and market test the new totts. the company's marginal tax rate is 40%. the rrr on this invesment is 14%.

1) Using excel, calculate the net initial investment needed for the new tott machine. (label everything)

2) Using excel, calculate the expected after tax salvage value of the new machine when the time comes for it to be sold. (label everything)

3) Using excel, estimate all the relevant annual free cash flows and show them on a timeline (using excel.)

4) Use (npv, PI, irr, mirr, pbp, dpbp) to make a decision as to whether to go ahead with the project. use excel finance functions. assume a 6 year pbp.