Trine University, Fall 2021, Dr.

Kolar

FIN 5203.1D2: Group Project 2, Due December 12, at 11:59pm ET

Uploading and formatting your file:

Please have one group member upload one Excel file for your entire group using the assignment link on Moodle,
found under Week 7. Please make sure each group member checks the file afterwards; download the uploaded file
and double-check a correct file was uploaded, and that it includes all of the answers in the correct format, showing
all of the Excel functions and calculations in the cells. Make sure the uploaded file is of the xlsx format (file
extension). All of the group members are responsible for, and will be graded based on the file uploaded, regardless of
who uploaded the file. Please let me know in case you run into any issues either uploading the file, or with other
group members.
Setting up your file:
Start with a new Excel file and answer each question on a separate sheet within your file (2 sheets for question #2).
You will have 6 sheets in your file. Please make sure you use cell references wherever appropriate (everywhere
possible). As in the example Excel file and Excel video files on Moodle, list the model inputs (the information provided
in the question) at the top. Once you start working on developing your model below the inputs, you should NOT be
typing any numbers or answers in your cells; instead all cells should include cell references and Excel functions
wherever possible. DO NOT use discount factors within your Excel file; use Excel functions whenever you need to
compute a future value or present value. Perform all of your calculations directly in the Excel cells; do not calculate
anything outside of Excel; Excel functions you may need to use: PV, FV, PMT, RATE, NPER, NPV, and IRR. Some
questions ask for a written answer, in addition to calculating an answer in Excel; please make sure you answer all
questions asked; create a box below your calculations where you type in your written answer whenever required.
Note: Always assume cash flows occur at the end of the period.

Question 1 (based on Week 5 Excel Examples – Chapter 7)

Consider the two mutually exclusive projects described in the table below. (Note: Each part of the question requires a
written answer.)
a) Assuming 9% minimum attractive rate of return (MARR), should either of the two projects be accepted?
Why?
b) Assuming 16% MARR, should either of the two projects be accepted? Why?
c) For any positive value of the MARR, divide the possible MARR values into ranges with different decisions;
describe and discuss what decision would be made in each range and why. You will need to calculate the
crossover rate to determine the precise MARR where the decision changes. Include an NPV profile table and
chart to illustrate your answer.
Year Cash Flow Cash Flow
Project A Project B
0 -450,000 -700,000
1 200,000 200,000
2 150,000 200,000
3 100,000 200,000
4 100,000 200,000
5 75,000 200,000
Question 2 (based on Week 5 Excel Examples – Chapter 10)
Estimate the weighted average cost of capital for Procter & Gamble Co. (ticker PG), using the income statement and
balance sheet data for year 2021 for PG from www.morningstar.com, and using the historical stock price data for PG
and VFINX from www.finance.yahoo.com. You will also need to look up the market cap for PG. (Do not use balance
sheet and income statement from finance.yahoo.com, it has errors in it. Make sure you use year 2021 data from the
balance sheet and income statement on Morningstar – do not use the TTM column.) Note: Follow the video example
on Moodle! (This question doesn’t require a written answer)
1. Create a sheet in your Excel file (Q2a) that estimates the weighted average cost of capital, listing the
necessary inputs and calculations. Obtain any necessary data from the sources listed above. To estimate PG’s
cost of equity, use the Capital Asset Pricing Model, assuming 2.5% risk-free rate and 5.5% market risk
premium. Calculate your own beta (see below). Link to the beta, calculated on sheet b, using a cell reference.
2. Create a second sheet (Q2b), where you estimate PG’s beta, using historical prices with DAILY frequency for
the following dates: starting date 07/01/2020, and ending date 07/01/2021 (note: input the dates 7/1 using
the calendar icon, when you click “done” the dates showing may be 6/30, that’s okay). Use
finance.yahoo.com to download the prices for PG and VFINX (make sure you use the ADJUSTED CLOSE
price). Use the SLOPE function to estimate beta. Insert a scatter chart that shows the trendline from
regressing returns of PG on the VFINX returns, and displays the estimated equation.
Note: The best way to access the balance sheet and income statement data is the following. Go to morningstar.com,
pull the company (make sure you pull the PG ticker symbol), click on Key Ratios -> Full Key Ratios Data -> Financials,
where you can access the balance sheet and income statement. Note that you can collapse and un-collapse some
rows by clicking on the arrows on the left side.

Question 3 (based on Week 6 Excel Examples – Chapter 11)

A new machine will cost $200,000. Its maximum useful life is 8 years. The expected market value (MV) of the
machine at the end of year 1 is $100,000, and it is expected to decline by $15,000 each year afterwards. The annual
operating cost (AOC) is projected to be $75,000 during the first year of operation, and it is expected to rise by 15%
every year afterwards. Assuming 11% minimum attractive rate of return, calculate the economic service life of the
machine. Your calculations need to include a table with the following columns: Year, MV, AOC, Capital Recovery,
Annual Worth (AW) of AOC, and Total AW. Illustrate your analysis with a properly labeled chart, featuring the
number of years of service on the horizontal axis, and capital recovery, annual worth of the AOC, and total annual
worth on the vertical axis (click to format the vertical axis and check the box “Values in reverse order” so that the axis
displays rising cost as movement up). Please provide a written statement clearly stating the length of the economic
service life of the machine.

Question 4 (based on Week 6 Excel Examples – Chapter 13)

RC Sport assembles and sells low-end hockey goals, designed for youth and recreational hockey. At the moment, the
company is buying all of the components required to assemble each hockey goal from an external supplier: the goal
frame for $50, padding for $15, and netting for $10. The company employs part-time labor, paid $5 to assemble one
goal. The annual fixed cost, consisting of insurance, property taxes, and rent is $20,000. The selling price of one goal
is $125. Ignore taxes, and other possibly relevant information not given. (Note: Please include a written answer with
part d.)

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 a) Calculate the contribution margin per unit.
b) Calculate the annual number of soccer goals that RC Sport needs to sell to break even.
c) Construct a table with Number of Units sold, Fixed Cost, Variable Cost, Total Cost, Total Revenue, and Profit
in the columns. Fill the units sold column with the following values: 0, 100, 200, 300, 400, 500, 600, 700,
800, 900, and 1000. Fill in the remaining columns with formulas and cell references, as necessary. Insert two
Excel Charts, one showing Number of Units (x) and Profit (y), the other showing Number of Units (x), Total
Revenue (y1), and Total Cost (y2). Use labels in your charts and make them look good for full credit!
d) RC Sport is considering producing the goal frame in its existing facility, instead of buying it from an external
supplier. In order to make the goal frames, it would need to buy a new machine. The machine would be
expected to last 7 years, and sold for $8,000 at the end of year 7. Its annual maintenance and operating cost
would be $50,000. RC would also need to buy $30 worth of material to produce each goal frame. The
padding and netting would continue to be purchased from the same external supplier for the same price,
and it would still cost $5 in labor cost to assemble one goal. Assuming RC Sport is able to produce and sell
10,000 hockey goals annually, what is the maximum purchase price of the machine that would make it
economical for RC Sport to make the hockey goal frames internally? Use the annual worth method,
assuming 15% MARR, and the Excel Goal Seek function to find the answer. Please make sure you save your
Excel file after running Goal Seek, so that I can verify your file to make sure that you did use the Goal Seek
function to arrive at your answer. (Do not use the “trial and error”, or another method.) Provide a written
statement indicating the maximum economical price of the machine. Note: You will need to make up a
purchase price of the machine to start with, which you can then override with the Goal Seek function.

Question 5 (based on Week 7 Excel Examples – Chapter 18)

Angola Superheros, Inc. is considering launching a production of a new superhero toy. The production and sales are
expected to last 4 years. The project would require a new machine, with a cost of $1,000,000. The machine is
expected to be sold for $300,000 at the end of the project. The company estimates that 40,000 toys would be sold
annually, with a $15 contribution margin per unit (the difference between the selling price and the variable cost per
unit). In addition, the company will have to pay fixed costs equal to $35,000 each year. The minimum attractive rate
of return is 13%. (Note: You will need to provide a written answer for part a, and written comments discussing the
results of your analysis in part b.) (Note: Do not include the selling price or the variable cost per unit in your
analysis. Also, you will need to work with the total contribution to profits for all units, and fixed costs, instead of
Revenues and Costs.)
a) Compute the project’s cash flows for years 0-4, calculate the present worth, annual worth, and the rate of
return of the project, and determine whether the project should be accepted, based on the information
given (disregarding any sensitivity analysis). Explain your answer.
b) Conduct the following sensitivity analysis, using the project’s ANNUAL WORTH. Create a table where you
vary the following variables, one at a time: the contribution margin per unit, the annual number of units sold,
the annual fixed cost, and the machine’s salvage value at the end of the project. Create a table, starting with
a Percent Change in its first column, with the following values: -50%, -40%, -30%, -20%, -10%, 0, 10%, 20%,
30%, 40%, and 50%. Follow with each variable and an Annual Worth column, corresponding to each of the
variables you vary. You can use the Excel example file posted under Week 7 as your guide (your tables and
set up will be slightly different, but similar). Vary each of the variables ranging from -50% to 50%, one at a
time, while keeping all of the other variables at their baseline values, recomputing the project’s annual
worth each time. Insert a chart with the percent change on the horizontal axis, and the contribution margin,
number of units, fixed cost, and salvage value on the vertical axis. Comment on the sensitivity of the
project’s annual worth to changes in each of the four variables, and the implications for accepting or
rejecting the project.

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