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Answered: - I was seeing if I could get help answering the three questions on


I was seeing if I could get help?answering the three questions on tab 2 on the excel file.?


Frank Smith Plumbing

 

Data:

 

Cost of Capital (borrowing)

 

Cost of Automobile

 

Cost of additional equiment atached to tu

 

Tax rate

 

Annual Before Tax Cash flows

 

?

 


 

Project

 

12.00%

 

$200,000

 

$15,000

 

35%

 


 

Process Area:

 

Cash Outflows

 

Cost of Equipment

 

Total Investment Outlays

 


 

Year-2

 


 

Year-3

 


 

Year-4

 


 

Year-5

 


 

Year-6

 


 

Year-7

 


 

Year-8

 


 

$70,000

 


 

$70,000

 


 

$65,000

 


 

$60,000

 


 

$55,000

 


 

$50,000

 


 

$40,000

 


 

$30,000

 


 

0.2000

 


 

Depreciaiton Rate (MACRS)

 


 

Year-1

 


 

0.3200

 


 

0.1920

 


 

0.1152

 


 

0.1152

 


 

0.0576

 


 

0.0000

 


 

0.0000

 


 

Year-1

 

$70,000

 

43,000

 

27,000

 

9,450

 

17,550

 

43,000

 

60,550

 


 

Year-2

 

$70,000

 

68,800

 

1,200

 

420

 

780

 

68,800

 

69,580

 


 

Year-3

 

$65,000

 

41,280

 

23,720

 

8,302

 

15,418

 

41,280

 

56,698

 


 

Year-4

 

$60,000

 

24,768

 

35,232

 

12,331

 

22,901

 

24,768

 

47,669

 


 

Year-5

 

$55,000

 

24,768

 

30,232

 

10,581

 

19,651

 

24,768

 

44,419

 


 

Year-6

 

$50,000

 

12,384

 

37,616

 

13,166

 

24,450

 

12,384

 

36,834

 


 

Year-7

 

$40,000

 

0

 

40,000

 

14,000

 

26,000

 

0

 

26,000

 


 

Year-8

 

$30,000

 

0

 

30,000

 

10,500

 

19,500

 

0

 

19,500

 


 

Year - 0

 

$215,000

 

$215,000

 


 

Cash Inflows:

 

Net Operating Cash flows

 

Depreciation

 

Earnings before interest and taxes

 

Taxes

 

Earning after taxes

 

Add Depreciation

 

Net Operating Cash flows

 


 

Year-0

 

(215,000)

 


 

Pay Back Period

 


 

(215,000)

 


 

(154,450)

 

(2.55)

 


 

(84,870)

 

(1.22)

 


 

(28,172)

 

(0.50)

 


 

19,497

 

0.41

 


 

63,916

 

1.44

 


 

100,750

 

2.74

 


 

126,750

 

4.88

 


 

146,250

 

7.50

 


 

Discounted Operating Cash flows

 


 

(215,000)

 

(215,000)

 


 

54,063

 

(160,938)

 

(2.98)

 


 

55,469

 

(105,469)

 

(1.90)

 


 

40,357

 

(65,112)

 

(1.61)

 


 

30,294

 

(34,818)

 

(1.15)

 


 

25,204

 

(9,613)

 

(0.38)

 


 

18,661

 

9,048

 

0.48

 


 

11,761

 

20,809

 

1.77

 


 

7,876

 

28,685

 

3.64

 


 

Decision Criteria:

 

Pay Back Period

 

Discounted Pay Back Period

 

Net Present Value

 

Internal Rate of Return

 

Profitability Index

 


 

(215,000)

 


 

3.59 Years

 

5.52 Years

 

$28,684.83 = Accept

 

16.514% = Accept

 

1.1334 = Accept

 


 

be sure the a

 

in this row

 


 

1. Assume you are Stephanie, research whether there is an ethical problem with the mother calling the bank manager and his wife in getting the loan

 

approved. If there is an ethical issue, how should Stephanie convince her mother that it is inappropriate to call the bank manager and his wife for

 

assistance in getting the loan approval?

 


 

2. Explain why limited leverage is good for business.

 


 

3. Based on the given information, tax rate, and depreciation show the profitability of the project so that Stephanie can convince her father to purchase

 

the truck by borrowing money.

 


 

 


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