Madison manufacturing is considering a new machine that costs $350,000 and would reduce pre tax manufacturing costs by $110,000 annually. Madison would use the 3 year MACRS method to depreciate the machine, and management thinks the machine would have a value of $33,000 at the end of its 5 year operating life. The applicable depreciation rates are 33.33%, 14.81%, and 7.42%, as discussed in Appendix 11A. Working capital would increase by $35,000 at the end of the projects 5 year life. Madison's marginal tax rate is 40%, and a 10% WACC is appropriate for the project.

a. Calculate the projects NPV, IRR, MIRR, and Payback.

b. Assume management is unsure about the $110,000 cost savings-this figure could deviate by as much as plus or minus 20%. What would the NPV be under each of those extremes?

c. Suppose the CEO wants you to do a scenario analysis with different values for the cost savings, the machines salvage value, and the working capital (WC) requirement. She asks you to use the following probabilities and calues in the scenario analysis:

Scenario               Probability          Cost Savings       Salvage Value    WC

Worst Case         .35                          $88,000                 $28,000                 $40,000

Base Case            .35                          $110,000              $33,000                 $35,000

Best Case            .30                          $132,000              $38,000                 $30,000

Calculate the projects NPV, its standard deviation, and it's coefficient of variation. Would you recommend that the project be accepted?

Please show work in excel with formulas / explanations as necessary.