FIN 3320 Assignment

2 problems
(recommend you change name of this Excel file to "YourNam

Problem 1

(70% of grade)

Problem 1
Summer Tyme, Inc. has cash available and is considering a new
three-year expansion project that requires an initial fixed investment
as indicated below. For tax purposes, the fixed assets will be
depreciated straight-line to zero over its three-year tax life for book
and tax purposes. The fixed assets will have a market (salvage)
value shown at the end of the project. The project is estimated to
generate revenues during the three years as shown. Costs are a % of
the same year sales. The project net working capital requirement is
shown as a % of the next year's revenue. What are the projects
net cash flows for years 0-3? What is the IRR on this project?
The Excel model has been started, but must be completed using
"best practices" (use formulas - no hardcoding in model).
INPUTS

Revenue t=1
Revenue t=2
Revenue t=3
Investment
Depr. years
Final book value
FA Sale value t=3
NWC req't
Costs (% of rev.)
Tax rate

$
$
$
$

2,000,000
2,500,000
3,100,000
3,800,000
3

$
$

400,000
10%
26%
35%

Year 0
NWC total req't
Operations:
Revenue
Expenses
Depreciation
EBIT
Taxes

0 $

$
$
$
$
$

200,000

Net Income (NI)

CF from Operations

$
$

Net Working Cap.

Change in NWC

(200,000)

(3,800,000)

(3,800,000)

(4,000,000)

Captial Spending:
CF - Orig. Invest
CF - Salvage
CF - Tax on Salvage
Total Cap. Spending
Total CF (A+B+C)

Project IRR

22.80%

(30% of grade)

Problem 2

Year 0
Total Cash Flow
Discount rate

a)

NPV

b) Accept/Reject
c)

IRR

(10,000)

1,015.67
accept
19.855%

e of this Excel file to "YourNameExcel_HW.xlsx")

g a new
d investment
ill be
ife for book
salvage)
mated to
ts are a % of
uirement is
e projects
ject?

ed using
.

SL

You may use positive or negative numbers in this section below in any
consistent manner. Please make sure your Excel formulas are
consistent and that your cash flow numbers are correct.

Year 1

$
$
$
$
$

2,000,000
120,000
1,266,667
613,333
214,667

Year 2

Year 3

$
2,500,000
$
250,000
$
1,266,667
$
983,333
$ 344,166.67

$ 3,100,000
$
406,000
$ 1,266,667
$ 1,427,333
$
499,567

Variations of
negative num
acceptable as
are consisten
total correctly

$
$

398,667 $
639,167 $
927,767
1,665,333
1,905,833
$ 2,355,100

1,665,333 $

###

200,000

1,905,833 $ 2,555,100

Use Excel formulas for a) and c) below

Year 1
$

<- use Excel formula

<- use Excel formula

4,500 $

Year 2
4,800

Year 3
$
5,000
14%

Variations of
negative num
acceptable as
are consisten
total correctly

Variations of positive and

negative numbers are
acceptable as long as formulas
are consistent and cash flows
total correctly.

Variations of positive and

negative numbers are
acceptable as long as formulas
are consistent and cash flows
total correctly.