Assignment 1: Net Present Value Analysis
Question # 00094133
Posted By:
Updated on: 08/18/2015 03:50 PM Due on: 09/17/2015
Assignment 1: Net Present Value Analysis
Created by:
Date: March 1, 2015
Note: Change the inputs, shown in green below (i.e. interest rate, number of years, costs, and benefits). Be sure to doublecheck the
formulas based on the inputs.
Discount rate
7.00%
Assume the project is completed in Year 0
Costs
Discount factor
Discounted costs
Benefits
Discount factor
Discounted benefits
Discounted benefits - costs
Cumulative benefits - costs
ROI
Assumptions
Enter assumptions here
Year
0
725,000
1.00
725,000
1
220,000
0.93
204,600
2
220,000
0.87
191,400
3
220,000
0.82
180,400
4
220,000
0.76
167,200
0
1.00
0
0.93
-
0.87
-
0.82
0.76
(725,000)
(725,000)
725,000
-
(191,400)
(191,400)
-100%
Payback in Year 1
5 Total
220,000
0.71
156,200 1,624,800
0.71
-
-
(156,200) (1,624,800)
(347,600)
NPV
Created by:
Date: March 1, 2015
Note: Change the inputs, shown in green below (i.e. interest rate, number of years, costs, and benefits). Be sure to doublecheck the
formulas based on the inputs.
Discount rate
7.00%
Assume the project is completed in Year 0
Costs
Discount factor
Discounted costs
Benefits
Discount factor
Discounted benefits
Discounted benefits - costs
Cumulative benefits - costs
ROI
Assumptions
Enter assumptions here
Year
0
725,000
1.00
725,000
1
220,000
0.93
204,600
2
220,000
0.87
191,400
3
220,000
0.82
180,400
4
220,000
0.76
167,200
0
1.00
0
0.93
-
0.87
-
0.82
0.76
(725,000)
(725,000)
725,000
-
(191,400)
(191,400)
-100%
Payback in Year 1
5 Total
220,000
0.71
156,200 1,624,800
0.71
-
-
(156,200) (1,624,800)
(347,600)
NPV
Assignment 1: Net Present Value Analysis
25 points
Scenario
War Eagle Trading Company is considering the purchase of a new robotic microwelding machine to be used in the production of various metal desktop memorabilia
(statuettes, paper weights, business card holders, etc.) it sell to Auburn University fans.
The machine costs $725,000 (including installation and testing). The vendor estimates
it will take about 12 months to design, produce and install the welding machine from the
date it is ordered. The machine will be ready for full production after that date. The
vendor requires the purchase of a $70,000 annual maintenance contract with this
machine. The maintenance contract covers all anticipated costs of operating the
welding machine.
Your manufacturing plant manager has estimated the company will save $290,000 a
year in overtime pay by switching to the robotic welding process.
Assignment
The CFO wants you to determine if such a purchase is financially viable for the
company. She has stated the projected costs and benefits for this project are to be
spread over five years. Further, she said War Eagles current opportunity cost of capital
is 7%.
Use the format provided in Figure 4-5 in the text as a template to display your analysis.
Be sure to highlight the following:
1. NPV
2. Year when payback occurs (or note that payback is not reached within 5 years)
3. ROI
In a sentence, would you recommend investing in this project, based on your financial
analysis?
25 points
Scenario
War Eagle Trading Company is considering the purchase of a new robotic microwelding machine to be used in the production of various metal desktop memorabilia
(statuettes, paper weights, business card holders, etc.) it sell to Auburn University fans.
The machine costs $725,000 (including installation and testing). The vendor estimates
it will take about 12 months to design, produce and install the welding machine from the
date it is ordered. The machine will be ready for full production after that date. The
vendor requires the purchase of a $70,000 annual maintenance contract with this
machine. The maintenance contract covers all anticipated costs of operating the
welding machine.
Your manufacturing plant manager has estimated the company will save $290,000 a
year in overtime pay by switching to the robotic welding process.
Assignment
The CFO wants you to determine if such a purchase is financially viable for the
company. She has stated the projected costs and benefits for this project are to be
spread over five years. Further, she said War Eagles current opportunity cost of capital
is 7%.
Use the format provided in Figure 4-5 in the text as a template to display your analysis.
Be sure to highlight the following:
1. NPV
2. Year when payback occurs (or note that payback is not reached within 5 years)
3. ROI
In a sentence, would you recommend investing in this project, based on your financial
analysis?
-
Rating:
/5
Solution: Assignment 1: Net Present Value Analysis