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[answered] Majestic Mulch and Compost Company (MMCC) YEAR 0 Background


Please complete this instruction using the excel file which i am sending you.


Majestic Mulch and Compost Company (MMCC)

 

YEAR 0 Background Data:

 

Unit Sales Estimates

 

Variable Cost /unit

 

Fixed Costs per year

 

Sale Price per unit

 

Tax Rate

 

Required Return on Project

 

Yr 0 NWC

 

NWC % of sales

 

Equipment cost - installed

 

Salvage Value in year 8 $

 

$

 

$ $

 

$ Depreciation Calculations:

 

Equipment Depreciable Base

 

MACRS % (Eqpt-7 yr)

 

Recovery Allowance

 

Book Value

 

After-Tax Salvage Value

 

Salvage Value

 

Book Value (Year 8)

 

Capital Gain/Loss

 

Taxes

 

Net SV (SV-Taxes) 1 2 3 3,000

 

60.00

 

25,000.00

 

120.00

 

$

 

120.00

 

34.0%

 

15.0%

 

20,000.00

 

15%

 

800,000

 

20% of equipment cost 5,000 6,000 120.00 ### 14.29%

 

114,320

 

685,680 24.49%

 

195,920

 

489,760 17.49%

 

139,920

 

349,840 20,000 54,000 90,000 108,000 0 1 2 3 600,000

 

300,000

 

25,000

 

195,920

 

79,080

 

26,887

 

52,193

 

195,920

 

248,113

 

(36,000) 720,000

 

360,000

 

25,000

 

139,920

 

195,080

 

66,327

 

128,753

 

139,920

 

268,673

 

(18,000) $ 800,000 20% 160,000

 

0

 

160,000

 

54,400

 

105,600 Required Net Working Capital Investment YEAR

 

Initial Investment

 

Equipment Cost

 

Sales

 

Variable Costs

 

Fixed Costs

 

Depreciation (Eqpt)) (800,000) EBT

 

Taxes

 

Net Operating Income

 

Add back Depreciation

 

CASH FLOW from Operations

 

NWC investment & Recovery

 

Salvage Value

 

TOTAL PROJECTED CF (20,000) 360,000

 

180,000

 

25,000

 

114,320

 

40,680

 

13,831

 

26,849

 

114,320

 

141,169

 

(34,000) (820,000) 107,169 212,113 250,673 Discounted Cash Flows (820,000) 93,190 160,388 164,821 Cumulative Cash flows (820,000) (712,831) (500,718) (250,046) NPV

 

IRR $65,483

 

17.24% Scenario Analysis

 

Units

 

Price/unit

 

Variable cost/unit

 

Fixed cost/year $

 

$

 

$ Base

 

6,000

 

80.00 $

 

60.00 $

 

50,000 $

 

BASE Lower

 

5,500

 

75.00 $

 

58.00 $

 

45,000 $

 

BEST Upper

 

6,500

 

85.00

 

62.00

 

55,000 WORST Initial investment

 

$ 200,000

 

Depreciated to salvage value of 0 over 5 years

 

Deprec/yr $

 

40,000

 

Project Life

 

5 years

 

Tax rate

 

34%

 

Required return

 

12% Units

 

Price/unit

 

Variable cost/unit

 

Fixed Cost

 

Sales

 

Variable Cost

 

Fixed Cost

 

Depreciation

 

EBIT

 

Taxes

 

Net Income

 

+ Deprec $

 

$

 

$

 

$ BASE

 

6,000

 

80.00 $

 

60.00 $

 

50,000 $ WORST

 

5,500

 

75.00 $

 

62.00 $

 

55,000 $ BEST

 

6,500

 

85.00

 

58.00

 

45,000 480,000 $

 

360,000

 

50,000

 

40,000

 

30,000

 

10,200

 

19,800

 

40,000 412,500 $

 

341,000

 

55,000

 

40,000

 

(23,500)

 

(7,990)

 

(15,510)

 

40,000 552,500

 

377,000

 

45,000

 

40,000

 

90,500

 

30,770

 

59,730

 

40,000 TOTAL CF 59,800 24,490 99,730 NPV 15,566 (111,719) 159,504 IRR NOTE: 15.1% -14.4% 40.9% Note in WORST CASE, tax credit for negative earnings Sensitivity Analysis

 

Units

 

Price/unit

 

Variable cost/unit

 

Fixed cost/year $

 

$

 

$ Base

 

6,000

 

80

 

60

 

50,000 Units

 

5,500

 

80

 

60

 

50,000 Fixed Cost

 

6,000

 

80

 

60

 

55,000 Initial investment

 

$ 200,000

 

Depreciated to salvage value of 0 over 5 years

 

Deprec/yr

 

$

 

40,000

 

Tax rate

 

Required Return 34%

 

12% Units

 

Price/unit

 

Variable cost/unit

 

Fixed cost BASE

 

6,000

 

80 $

 

60 $

 

50,000 $ Sales

 

Variable Cost

 

Fixed Cost

 

Depreciation

 

EBIT

 

Taxes

 

Net Income

 

+ Deprec $

 

$

 

$

 

$ TOTAL CF

 

NPV $ 480,000

 

360,000

 

50,000

 

40,000

 

30,000

 

10,200

 

19,800

 

40,000 $ UNITS

 

5,500

 

80 $

 

60 $

 

50,000 $

 

440,000

 

330,000

 

50,000

 

40,000

 

20,000

 

6,800

 

13,200

 

40,000 $ 59,800 53,200 15,566 $ (8,226) $ FC

 

6,000

 

80

 

60

 

55,000

 

480,000

 

360,000

 

55,000

 

40,000

 

25,000

 

8,500

 

16,500

 

40,000

 

56,500

 

3,670 % Change in NPV

 

% Change in Variable -152.8%

 

-8.3% -76.4%

 

10.0% SENSITIVITY RATIO 18.34

 

DIRECT -7.64

 

INVERSE Sensitivity Ratio = (% Change in NPV)/% Change in Variable

 

Positive = Direct relationship

 

Negative = Inverse relationship $ (200,000) $ (200,000) $ (200,000)

 

59,800

 

53,200

 

56,500

 

59,800

 

53,200

 

56,500

 

59,800

 

53,200

 

56,500

 

59,800

 

53,200

 

56,500

 

59,800

 

53,200

 

56,500

 

PV

 

NPV $

 

$ 215,566 $

 

15,566 $ 191,774 $

 

(8,226) $ 203,670

 

3,670

 


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