Answer Happy

Problem A-18 (Algo) Sensitivity Analysis in Capital Investment Decisions 7 Square Manufacturing is considering investing in a robotics manufacturing line. Installation of the line will cost an estimated $9.5 million. This amount must be paid immediately even though construction will take three years to complete (years 0, 1, and 2). Year 3 will be spent testing the production line and, hence, it will not yield any positive cash flows. If the operation is very successful, the company can expect after-tax cash savings of $6.5 million per year in each of years 4 through 7. After reviewing the use of these systems with the management of other companies, Square's controller has concluded that the operation will most probably result in annual savings of $4.7 million per year for each of years 4 through 7. However, it is entirely possible that the savings could be as low as $2.3 million per year for each of years 4 through 7. The company uses a 14 percent discount rate. Use Exhibit A.8. Required: Compute the NPV under the three scenarios. (Round PV factor to 3 decimal places. Enter your answers in thousands of dollars. Negative amounts should be indicated by a minus sign.) Best Case Expected Worst Case Net present value
Exhibit AB Present Value of $1 Year 5 64 85 105 125 145 155 165 185 205 1 0952 0943 0.926 0.909 0.893 0.877 0.870 0.862 0.847 0.833 2 0.907 0.890 0.857 0.826 0.797 0.769 0.756 0.743 0.718 0.694 30.864 0.540 0.794 0.751 0.712 0.675 0.65% 0.64 0,609 0.579 0.823 0.792 0.735 0.683 0.636 0.592 0.572 0552 0516 0.482 5 0.784 0.747 0.681 0.621 0.567 0.519 0.497 0.476 0.437 0.402 6 0.746 0.705 0,630 0564 0.507 0.456 0432 0.410 0.370 0.335 4 7 0.711 0.665 0.583 0.513 0.452 0.400 0.376 0.354 0.314 0.279 8 0.677 0.627 0510 0.467 0.404 0.351 0.327 0.305 0.266 0.233 9 0.645 0.592 0.500 0.424 0.361 0.308 0.284 0.263 0.225 0.194 10 0.614 0.558 0463 0.386 0.322 0.270 0.247 0.227 0.191 0.162 11 0.585 0.527 0.429 0.350 0.287 0.237 0.215 0.195 0.162 0.135 12 0.557 0.497 0.397 0.319 0.257 0.208 0.187 0.168 0.137 0.112 13 0.530 0469 0.368 0.290 0.229 0.182 0.163 0.145 0.116 0.093 14 0.505 0.442 0.340 0.263 0.205 0.160 0.141 0.125 0.099 0.078 15 0.481 0.417 0.315 0.239 0.183 0.140 0.123 0.109 0.084 0.065 Year 225 245 255 26 28% 20% 32% 345 355 405 1 0.820 0.806 0.800 0.796 0.781 0.769 0.758 0.746 0.741 0.714 2 0.672 0.650 0.610 0,60 0,610 0.592 0.574 0.557 0.549 0.510 3 0.551 0.524 0.512 0.500 0.472 0.455 0,435 0.416 0.406 0.364 4 0.451 0.423 0.410 0.397 0.373 0.350 0.329 0.310 0.301 0.260 5 0.370 0.341 0.328 0.315 0.291 0.200 0.250 0.231 0.223 0.186 6 0.303 0.275 0.262 0.250 0.227 0.207 0.189 0.173 0.165 0.133 70.249 0.222 0.210 0.1980.178 0.159 0.143 0.129 0.122 0.095 # 0.204 0.179 0.168 0.157 0.139 0.123 0.108 0.096 0.091 0.068 9 0.167 0.144 0.134 0.125 0.108 0.094 0.082 0.072 0.067 0.048 10 0.137 0.116 0.107 0099 0.035 0.073 0.062 0.051 0.00 0.035 HI 0.112 0.094 0.06 0.079 0.066 0.056 007 0.00 0.027 0.025 12 0.092 0.076 0.009 0.062 0052 0.013 0036 0.030 0.027 0.018 13 0.075 0:061 0.035 0.00 0.00 0.033 0.027 0.022 0.020 0.013 14 002 0019 0.014 0.019 0.032 0.025 0.021 0.017 0.015 0.009 IS 0.051 0.010 0.035 0.03 0.025 0.020 0.016 0012 001 0.006