MGT 325 Module 6 Spreadsheet Exam Part A

MGT 325 Module 6 Spreadsheet Exam Part A

COMPREHENSIVE CHAPTER 12 & 13 PROBLEMS
MONARCH CORPORATION IS GOING TO START A NEW PRODUCT LINE OF PRODUCTS IN A WHOLE NEW MARKET.
THE DATA FOR ANALYSIS IS PRESENTED BELOW:

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COST OF THE EQUIPMENT NEEDED $194,000 FIVE YEAR PROPERTY FOR TAX DEPRECIATION
NEW WORKING CAPITAL NEEDS $50,000 WILL BE RECOVERED AT THE END OF THE THIRD YEAR
PROJECTED NEW REVENUES:
SALES PROBABILITY
$200,000 30%
$250,000 50%
$300,000 20%
COST OF GOOD SOLD 30% OF SALES
VARIABLE CASH COSTS 10% OF SALES
ANNUAL FIXED CASH COSTS:
RENT $50,000
CLEANING $20,000
MAINTENANCE & OTHER $10,000
TOTAL FIXED COSTS $80,000
EQUIPMENT DISPOSAL PROCEEDS $19,400 SALVAGE VALUE AT THE END OF YEAR 6
FIRM’S COST OF CAPITAL 12.00%
TAX RATE 35%
NOTE – WHEN COMPUTING TAX, A NET LOSS FOR THE YEAR MEANS A POSITIVE TAX SAVINGS IS CREATED
SINCE THERE IS OTHER INCOME TAX ON OTHER INCOME TO OFFSET.
DEPRECIATION RATES FOR TAX PURPOSES:
YEAR ONE 20.00%
YEAR TWO 32.00%
YEAR THREE 19.20%
YEAR FOUR 11.50%
YEAR FIVE 11.50%
YEAR SIX 5.80%
ASSUMPTIONS:
ALL CASH FLOWS IN YEARS 1-6 OCCUR AT THE END OF THE YEAR. ALL INITIAL CASH INFLOWS OR
OUTFLOWS OCCUR TODAY.

REQUIRED:
A. ASSUMING SALES ARE $200,000 COMPUTE THE PAYBACK, IRR AND NPV. FOR THE NPV, COMPUTE
AT BOTH THE FIRM’S DISCOUNT RATE AND 16%, WHICH IS A 4% PREMIUM ADDED TO THE RATE.
B. COPY THE WHOLE WORKSHEET AND SOLUTIONS FOR PART A TO THE WORKSHEET NAMED PART B,
AND REDO THE COMPUTATIONS BY CHANGING THE ANNUAL SALES TO $250,000.
C. COPY THE WHOLE WORKSHEET AND SOLUTIONS FOR PART A TO THE WORKSHEET NAMED PART C,
AND REDO THE COMPUTATIONS BY CHANGING THE ANNUAL SALES TO $300,000.