SU MBA6010 Week 3 Project Assignment Question # 00602358 Course Code : MBA6010 Subject: Business Due on: 06/22/2019 Posted On: 06/22/2019 04:23 AM Tutorials: 0 Rating: 4.6/5

Your probationary period at the Cosmo K
Manufacturing Group continues. Your supervisor, Gerry, assigns you a project each
week to test your competence in finance.

The company is considering the addition of
a new office machine that will perform many of the tasks now performed
manually. For this week’s task, Gerry has given you the responsibility of
evaluating the cash flows associated with the new machine. He has requested the
report to be delivered within the week.

Evaluation of a New Office Machine

The Cosmo K Manufacturing Group currently
has sales of $1,400,000 per year. It is considering the addition of a new office
machine, which will not result in any new sales but will save the company
$105,500 before taxes per year over its 5-year useful life. The machine will
cost $300,000 plus another $12,000 for installation. The new asset will be
depreciated using a modified accelerated cost recovery system (MACRS) 5-year
class life. It will be sold for $25,000 at the end of 5 years. Additional
inventory of $11,000 will be required for parts and maintenance of the new
machine. The company evaluates all projects at this risk level using an 11.99%
required rate of return. The tax rate is expected to be 35% for the next
decade.

Tasks:

Answer the following questions:

What is the total investment in the new
machine at time = 0 (T = 0)?

What are the net cash flows in each of the
5 years of operation?

What are the terminal cash flows from the
sale of the asset at the end of 5 years?

What is the NPV of the investment?

What is the IRR of the investment?

What is the payback period for the investment?

What is the profitability index for the
investment?

According to the decision rules for the NPV
and those for the IRR, is the project acceptable?

Is there a conflict between the two
decision methods? If so, what would you use to make a recommendation?

What are the pros and cons of the NPV and
the IRR? Explain your answers.

Submission Details:

Show the data used and the calculations for
each question in a Microsoft Excel sheet and the analysis in a Microsoft Word
document.

Name your Microsoft Excel sheet MBA6010_W3_
LastName_FirstName.xls and your Microsoft Word