Calculate the after-tax incremental operating cash flows

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FINANCE - CAPITAL BUDGETING EXCEL PROJECT

Fauver Family Funhouses (FFF) is faced with two mutually exclusive investments at time 0. The initial investments required and yearly savings before depreciation and taxes are shown below (i.e. these are before-tax cash flows). Assume a tax rate of 34%.

Project	ICO (Year 0)	End of Year Cash Flows
Project	ICO (Year 0)	1	2	3	4	5	6	7
A	$14,500	$4,500	$4,500	$4,500	$4,500	$4,500	$4,500	$4,500
B	$9,000	$2,500	$2,500	$3,000	$3,000	$3,500	$3,500	$3,500

Under MACRS both assets fall in the 5-year property class and the depreciation percentages are:

	1	2	3	4	5	6	7
MACRS depreciation %s	20.00	32.00	19.20	11.52	11.52	5.76	0

1. In Excel, calculate the after-tax incremental operating cash flows for Years 0 through 7 for each project.

2. In Excel, using the after-tax cash flows from (1) above, and assuming a required rate of return of 8.5 percent, determine for each project:

a. Payback Period

b. Net Present Value

c. Profitability Index

d. Internal Rate of Return

3. Which project, if any, should Fauver Family Funhouses accept and why?

Reference no: EM131595343

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Reviews

len1595343

8/9/2017 5:48:50 AM

I need the project completed with the formulas in the Excel spreadsheet. You will complete the project using the Microsoft Excel program. You should use the formulas and link to the appropriate cells when possible. Make the Excel program do as many calculations as possible. Note that you are required to use the NPV function and IRR functions built into Excel. Be careful with NPV function! (Hint; Read the help file or look at the class notes for Chapter 13).

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