Question

Question 4 Hawke Skateboards is considering building a new plant. Bob Skerritt, the company's marketing manager, is an enthusiastic supporter of the new plant. LUCY Lou, the company's chief financial officer, is not so sure that the plant is a good idea. Currently, the company purchases its skateboards from foreign manufacturers. The following rigures were estimated regarding the construction of a new plant. Cost of plant Annual cash inflows Annual cash outflows $4,560,000 4,560,000 4,036,000 Estimated useful life Salvage value Discount rate 15 years $2,280,000 1196 Bob Skerritt believes that these figures understate the true potential value of the plant. He suggests that by manufacturing its own skateboards the company will beneht from a buy American patriotism that he believes is common among skateboarders. He also notes that the firm has had numerous quality problems with the skateboards manufactured by its suppliers. He suggests that the inconsistent quality has resulted in lost sales, increased warranty dams, and some costly lawsuits. Overall, he believes sales will be $228,000 higher than projected above, and that the savings from lower warranty costs and legal costs will be $68,000 per year. He also believes that the project is not as risky as assumed above, and that a 99% discount rate is more reasonable. Dick here to view. table Answer each of the following. Compute the net present value of the project based on the original projections. (if the net present value is negative use either a negative sign proceding the number eg -45 or parentheses e.o. (45). Round factor values to 5 decimal places, eg. 1.25724 and final answer to o decimal places, e.g. 5,275.) Net present value

Answer 1

Please find below table useful to compute desired results: -

1 ost of Plant А B Particulars 2 Cost of Plant 4560000 3 Annual Cash Inflows 4560000 4 Annual Cash Outflows 4036000 5 Estimated Useful Life 15 6 Salvage Value 2280000 7 Discount Rate =11/100 8 NPV of the Project =SUM(D12:D27) 9 Project should be Rejected 10 Present Value Table 11 Year PV factor Net Cash flows Present Value 12 O =1/(1+SBST) A12 =-B2 =C12 B12 13 1 =1/(1+$B$7) A13 =($B$3-$B$4) =C13*B13 14 2 =1/(1+SBS7) A14 =(SBS3-SBS4) =C14*B14 15 3 =1/(1+$B$7) A15 =(SBS3-SBS4) =C15*B15 16 4 =1/(1+SBS7)^A16 =($B$3-$B$4) =C16*B16 17 5 =1/(1+$B$7) A17 =(SBS3-SBS4) =C17*B17 18 6 I=1/(1+$B$7) A18 =(SB$3-$B$4) =C18*B18 19 7 =1/(1+$B$7) A19 =($B$3-$B$4) =C19*B19 20 8 =1/(1+SBS7)^A20 =($B$3-$B$4) =C20*B20 21 9 =1/(1+$B$7) A21 =($B$3-$B$4) =C21*B21 22 10 =1/(1+$B$7) A22 =($B$3-$B$4) =C22*B22 23 11 =1/(1+$B$7) A23 =($B$3-$B$4) =C23*B23 24 12 =1/(1+SBS7) A24 =($B$3-$B$4) =C24*B24 25 13 =1/(1+SBS7) A25 =($B$3-$B$4) =C25*B25 26 14 =1/(1+$B$7) A26 =($B$3-$B$4) =C26*B26 27 15 1=1/(1+SBS7) A27 |=(B$3-$B$4)+B6 (=C27*B27 |

End results would be as follows: -

B Particulars 2 Cost of Plant 4,560,000 3 Annual Cash Inflows 4,560,000 4 Annual Cash Outflows 4.036,000 5 Estimated Useful Life 15 6 Salvage Value 2.280,000 7 Discount Rate 119 8 NPV of the Project (315,454) 9 Project should be Rejected 10 Present Value Table 11 Year PV factor Net Cash flows Present Value (4,560,000)| (4,560,000) 1 0.90090 524,000 472,072 2 0.81162 524.000 425,290 0.73119 524.000 383,144 0.65873 524.000 345,175 0.59345 524,000 310,968 6 0.53464 524.000 280,152 0.48166 524.000 252,389 0.43393 524,000 227,377 0.39092 524.000 204,845 100.35218 524.000 184,545 0.31728 524,000 166,256 12 0.28584 524.000 149,781 13 0.25751 524,000 134,937 14 | 0.23199 524.000 121,565 15 0.20900 2,804,000 586,048 8 9 11