Assignment 1: Net Present Value AnalysisCreated by:Date: March 1, 2015Note: Change the inputs, shown in green below (i.e. interest rate, number of years, costs, and benefits). Be sure to doubleÂcheck theformulas based on the inputs.Discount rate7.00%Assume the project is completed in Year 0CostsDiscount factorDiscounted costsBenefitsDiscount factorDiscounted benefitsDiscounted benefits – costsCumulative benefits – costsROIAssumptionsEnter assumptions hereYear0725,0001.00725,0001220,0000.93204,6002220,0000.87191,4003220,0000.82180,4004220,0000.76167,20001.0000.93-0.87-0.820.76(725,000)(725,000)725,000-(191,400)(191,400)-100%Payback in Year 15 Total220,0000.71156,200 1,624,8000.71–(156,200) (1,624,800)(347,600)NPVAssignment 1: Net Present Value Analysis25 pointsScenarioWar 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 estimatesit will take about 12 months to design, produce and install the welding machine from thedate it is ordered. The machine will be ready for full production after that date. Thevendor requires the purchase of a $70,000 annual maintenance contract with thismachine. The maintenance contract covers all anticipated costs of operating thewelding machine.Your manufacturing plant manager has estimated the company will save $290,000 ayear in overtime pay by switching to the robotic welding process.AssignmentThe CFO wants you to determine if such a purchase is financially viable for thecompany. She has stated the projected costs and benefits for this project are to bespread over five years. Further, she said War Eagles current opportunity cost of capitalis 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. NPV2. Year when payback occurs (or note that payback is not reached within 5 years)3. ROIIn a sentence, would you recommend investing in this project, based on your financialanalysis?
