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Create an Excel spreadsheet for a production plant that the company will lease for 5 years at US$1,500,000

Create an Excel spreadsheet for a production plant that the company will lease for 5 years at US$1,500,000 per year; it will cost the firm US$4,000,000 in capital (straight-line depreciation, 5 year life) in year 0; it will cost the firm an additional US$150,000 per year after the new production plant is brought online for other expenses; and it will generate an incremental revenue of US$3,500,000 per year. Use a 40% tax rate, a 10% cost of capital, and a 12% re-investment rate.

Assume the company will use cash flow to finance the project.
Discuss how the project would fair under hurdle rate scenarios of 10%, 15%, and 20% (based on MIRR). 

SOLUTION PREVIEW
Statement showing Net cashflows:
Year
Initial investment
Incremental revenue
Lease cost
additional costs
Depreciation
Net profit
Taxes (40%)
Profit after taxes
Cash flows after taxes
0
-4,000,000
1
3,500,000
1,500,000
150,000
800,000
1,050,000
420000
630,000
1,430,000
2
3,500,000
1,500,000
150,000
800,000
1,050,000
420000
630,000
1,430,000

 
File name: Create-an-Excel-MIRR.xls File type: application/vnd.ms-excel Price: $9