Boomerang Project's cash flow
Analyze the Boomerang Project's cash flow and make a decision on whether you should invest in this project or not.
The project description is in the Word Document. The solution template is the Excel spreadsheet.
Your goal is to calculate NPV and IRR of this project.
You must submit the solutions as an Excel spreadsheet with your conclusions. Please use the step by step practice in Cash flow development.
Boomerang Inc.
Step-by-Step Practice in Cash flow development
- Basic problem. Boomerang Inc. is considering a new 4-year project. It will require the purchase of a $4.0 million machine with an additional $100,000 for shipping and $200,000 for installation. The machine will be depreciated straight-line to zero over its four-year economic life, after which it will have no salvage value. The project is expected to have sales of 100,000 units per year at a price of $20 per unit. There will be fixed costs of $20,000 per year and variable cost per unit of $6.25 per unit. The company’s marginal tax rate is 35%. Their cost of capital is 10 percent.
- Accelerated depreciation and sale of a capital asset. Same as in problem 2 except that the equipment will be depreciated as a MACRS 5-year asset and can be sold at the end of 4 years for $450,000.
- Dealing with growth. Same as the problem above except that the unit sales are expected to grow at a rate of 5% per year. Costs and prices are subject to inflation of 3% per year.
- Dealing with capacity limits. Same as in problem 4 except that production cannot exceed the machine capacity of 115,000 units per year
- Dealing with working capital needs. Same as in problem 3 except that the company will need working capital each year equal to 5% of next year’s sales.
Analyze the Boomerang Project's cash flow and make a decision on whether you should invest in this project or not.
The project description is in the Word Document. The solution template is the Excel spreadsheet.
Your goal is to calculate NPV and IRR of this project.
You must submit the solutions as an Excel spreadsheet with your conclusions. Please use the step by step practice in Cash flow development.
Boomerang Inc.
Step-by-Step Practice in Cash flow development
- Basic problem. Boomerang Inc. is considering a new 4-year project. It will require the purchase of a $4.0 million machine with an additional $100,000 for shipping and $200,000 for installation. The machine will be depreciated straight-line to zero over its four-year economic life, after which it will have no salvage value. The project is expected to have sales of 100,000 units per year at a price of $20 per unit. There will be fixed costs of $20,000 per year and variable cost per unit of $6.25 per unit. The company’s marginal tax rate is 35%. Their cost of capital is 10 percent.
- Accelerated depreciation and sale of a capital asset. Same as in problem 2 except that the equipment will be depreciated as a MACRS 5-year asset and can be sold at the end of 4 years for $450,000.
- Dealing with growth. Same as the problem above except that the unit sales are expected to grow at a rate of 5% per year. Costs and prices are subject to inflation of 3% per year.
- Dealing with capacity limits. Same as in problem 4 except that production cannot exceed the machine capacity of 115,000 units per year
- Dealing with working capital needs. Same as in problem 3 except that the company will need working capital each year equal to 5% of next year’s sales.
Sample Solution