MONARCH CORPORATION IS GOING TO START A NEW PRODUCT LINE OF PRODUCTS IN A WHOLE NEW MARKET. 
THE DATA FOR ANALYSIS IS PRESENTED BELOW: 

COST OF THE EQUIPMENT NEEDED $200,000 FIVE YEAR PROPERTY LIFE FOR TAX DEPRECIATION
NEW WORKING CAPITAL NEEDS $50,000 WILL BE RECOVERED AT THE END OF THE THIRD YEAR 
PROJECTED NEW REVENUES: 
SALES PROBABILITY 
$225,000 30% 
$350,000 50% 
$500,000 20% 
COST OF GOOD SOLD 25% OF SALES 
VARIABLE CASH COSTS 15% OF SALES 
ANNUAL FIXED CASH COSTS: 
RENT $50,000 
CLEANING $20,000 
MAINTENANCE & OTHER $20,000 
TOTAL FIXED COSTS $90,000 
EQUIPMENT DISPOSAL PROCEEDS $20,000 SALVAGE VALUE AT THE END OF YEAR 6 
FIRM’S COST OF CAPITAL 9.00% 
TAX RATE 30% 
NOTE – WHEN COMPUTING TAX A NET LOSS FOR THE YEAR A POSITIVE TAX SAVINGS IS CREATED 
SINCE THERE IS OTHER INCOME TAX ON OTHER INCOME TO OFFSET 
DEPRECIATION RATES FOR TAX PURPOSES: 
YEAR ONE 20.00% 
YEAR TWO 32.00% 
YEAR THREE 19.20% 
YEAR FOUR 11.50% 
YEAR FIVE 11.50% 
YEAR SIX 5.80% 
ASSUMPTIONS: 
ALL CASH FLOWS IN YEARS 1-6 OCCUR AT THE END OF THE YEAR. ALL INITIAL CASH INFLOWS OR 
OUTFLOWS OCCUR TODAY. 
REQUIRED: 
A. ASSUMING SALES ARE $225,000 COMPUTE THE PAYBACK, IRR AND NPV. FOR THE NPV COMPUTE 
AT BOTH THE FIRM’S DISCOUNT RATE AND 11%, WHICH IS A 2% PREMIUM ADDED TO THE RATE. 
B. COPY THE WHOLE WORKSHEET AND SOLUTIONS FOR PART A TO THE WORSHEET NAMED PART B, 
AND REDO THE COMPUTATIONS BY CHANGING THE ANNUAL SALES TO $350,000. 
C. COPY THE WHOLE WORKSHEET AND SOLUTIONS FOR PART A TO THE WORSHEET NAMED PART C, 
AND REDO THE COMPUTATIONS BY CHANGING THE ANNUAL SALES TO $500,000. 

Fill in all of the Cells below in Yellow using the information given above. 

PART A 
YEARS 0 1 2 3 4 5 6 
INITIAL INVESTMENT (NO INCOME TAX AFFECTS) 
COST OF THE EQUIPMENT NEEDED 
WORKING CAPITAL NEEDS 
TOTAL INITIAL INVESTMENT 

ANNUAL OPERATING RECEIPTS 
SALES 
LESS COST OF GOODS SOLD 
GROSS PROFIT 
LESS VARIABLE COSTS 
LESS FIXED COSTS 
LESS DEPRECIATION – 
PROFIT BEFORE TAX 
LESS INCOME TAX 
PROFIT AFTER TAX 
PLUS DEPRECIATION 
TOTAL OPERATING CASH FLOWS 

SALVAGE VALUE ON EQUIPMENT 
PROCEEDS 
LESS TAX BASIS OF EQUIPMENT: 
COST 
ACCUMULATED DEPRECIATION 
TAX BASIS 
GAIN ON SALVAGE 
LESS TAX ON SALVAGE GAIN 
NET PROCEEDS ON SALVAGE 

RELEASE OF WORKING CAPITAL (NO TAX AFFECT) 

TOTAL CASH FLOWS – – – – – – – 
CUMULATIVE CASH FLOWS – – – – – – 

THREE METHODS OF EVALUATION 
PAYBACK YEARS 
INTERNAL RATE OF RETURN
NET PRESENT VALUE AT 9.00% 
NET PRESENT VALUE AT 11.00%