Setting up an Excel Spreadsheet for a Company
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I need an example of how to set up an excel spreadsheet to calculate the following:
A spreadsheet for a production plant that a company will lease for 5 years at US$1,500,000 per year; it will cost the firm US$4,000,000 in capital (straight-line depreciation, 5 year life) in year 0; it will cost the firm an additional US$150,000 per year after the new production plant is brought online for other expenses; and it will generate an incremental revenue of US$3,500,000 per year. Use a 40% tax rate, a 10% cost of capital, and a 12% re-investment rate. Assume the company will use cash flow to finance the project.
And then I need to be able to discuss how the project would fair under hurdle rate scenarios of 10%, 15%, and 20% (based on MIRR).
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Solution Summary
Excel spreadsheet is attached and worded explanation given of how to wrestle many numbers and statistics into a useful company spreadsheet.
Solution Preview
Calculate the net operating cash flows in each of the years that the project will last. In this case, we're told that the plant will be leased for 5 years.
The initial outlay is clearly $4,000,000.
The cash flow in each of the following years is found in this way. We know that there will be savings of $3,500,000. Furthermore, there will be a lease cost of $1,500,000 per year and additional expenses for $150,000. Therefore, the net income before depreciation and taxes would be:
NI ...
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