Eisner Company has an opportunity to manufacture and sell a new product for a five-year period. The company estimated th
Posted: Thu Apr 28, 2022 11:08 am
Eisner Company has an opportunity to manufacture and sell a new
product for a five-year period. The company estimated the following
costs and revenues for the new product: Cost of new equipment $
420,000 Initial working capital required $ 85,000 Overhaul of the
equipment after three years $ 50,000 Salvage value of the equipment
after five years $ 30,000 Annual revenues and costs: Sales $
850,000 Variable expenses $ 500,000 Fixed out-of-pocket operating
costs $ 201,000 When the project concludes in five years the
working capital will be released for investment elsewhere in the
company. Click here to download the Excel template, which you will
use to answer the questions that follow. Click here for a brief
tutorial on Goal Seek in Excel. rev: 05_07_2020_QC_CS-210952,
01_11_2021_QC_CS-246235
3. In the Excel template, using Goal Seek, calculate this
investment’s internal rate of return.
4. What is the project’s net present value when using a discount
rate of 18%?
5. If the company wants to achieve an 18% return on this
investment, what is the maximum amount that it can spend each year
on fixed out-of-pocket operating costs? Use Goal Seek to compute
your answer. Note: The fixed out-of-pocket operating costs remain
constant for all five years, therefore modifying cell C13
automatically updates cells D13 through G13.
7. Refer to the original data. Using Goal Seek, calculate the
internal rate of return if the investment in working capital
increases from $85,000 to $105,000. Note: Be sure to return the
fixed out-of-pocket operating costs to the original value of
$(201,000).
product for a five-year period. The company estimated the following
costs and revenues for the new product: Cost of new equipment $
420,000 Initial working capital required $ 85,000 Overhaul of the
equipment after three years $ 50,000 Salvage value of the equipment
after five years $ 30,000 Annual revenues and costs: Sales $
850,000 Variable expenses $ 500,000 Fixed out-of-pocket operating
costs $ 201,000 When the project concludes in five years the
working capital will be released for investment elsewhere in the
company. Click here to download the Excel template, which you will
use to answer the questions that follow. Click here for a brief
tutorial on Goal Seek in Excel. rev: 05_07_2020_QC_CS-210952,
01_11_2021_QC_CS-246235
3. In the Excel template, using Goal Seek, calculate this
investment’s internal rate of return.
4. What is the project’s net present value when using a discount
rate of 18%?
5. If the company wants to achieve an 18% return on this
investment, what is the maximum amount that it can spend each year
on fixed out-of-pocket operating costs? Use Goal Seek to compute
your answer. Note: The fixed out-of-pocket operating costs remain
constant for all five years, therefore modifying cell C13
automatically updates cells D13 through G13.
7. Refer to the original data. Using Goal Seek, calculate the
internal rate of return if the investment in working capital
increases from $85,000 to $105,000. Note: Be sure to return the
fixed out-of-pocket operating costs to the original value of
$(201,000).