# Capital Expenditure - Monarch Corporation: Payback, IRR, NPV

Please see the attached file with 5 Problems on 1 spreadsheet for 1 company. Please solve and include instructions on how to solve.

Required:

A. Compute below the payback, IRR, and NPV. For NPV use the cost of capital as the discount rate. For part A assume the revenue is $200,000.

B. Copy the worksheet and solutions for part a to the worksheet part B, and redo the computations for a revenue of $250,000

C. Copy the worksheet and solutions for part a to the worksheet part C, and redo the computations for a revenue of $300,000. List the three NPVs and compute the expected NPV. Indicate whether monarch should do the project? If so why? If not why?

D. Take the IRRs calculated for the three different levels of revenue and compute the mean (expected return, standard deviation, and coefficient of variation given the probabilities for the three different IRRs. Remember you can list the IRRS based on how often they will occur, 3, 5, or 2 times out of 10.

F. Based on the results for part d, assume the discount rate to compute npv is based on the following:

https://brainmass.com/business/capital-budgeting/capital-expenditure-monarch-corporation-payback-irr-npv-195627

#### Solution Preview

See the attached file for complete solution. The text here may not be copied exactly as some of the symbols / tables may not print. Thanks

YEARS 0 1 2 3 4 5 6

INITIAL INVESTMENT (NO INCOME TAX AFFECTS)

COST OF THE EQUIPMENT NEEDED 194,000

WORKING CAPITAL NEEDS 50,000

TOTAL INITIAL INVESTMENT 244,000

ANNUAL OPERATING RECEIPTS

SALES 200,000 200,000 200,000 200,000 200,000 200,000

LESS COST OF GOODS SOLD 60,000 ...

#### Solution Summary

A comprehensive problem on capital investment. The solutions include four complete spreadsheets. The students can learn how to find relevant data from the problem to build financial models in Excel for decision-making.