Assignment: Must Use Excel To Complete The Following Problem

Assignment: Must use Excel Complete the following problems

Use Excel to analyze a new small engine assembly project's financial metrics. The project has the following parameters: Capital Investment = $15,000,000; Fixed Costs = $3,250,000; Variable Costs = $600 per unit; Price per Unit = $1,000; Demand = 20,000 units/year; Service Life = 12 years; Salvage Value = $500,000; Minimum Attractive Rate of Return (MARR) = 20%. You are required to compute the net present worth (NPW), equivalent annual worth (EAW), and internal rate of return (IRR) of this base-case scenario.

Then, analyze how changes in demand (17,000 and 23,000 units), fixed costs (20% lower and higher), and variable costs (15% lower and higher) impact these financial metrics. Show all work in Excel and include clear calculations for each scenario.

Paper For Above instruction

The financial evaluation of engineering projects is essential for decision-making and resource allocation. This paper explores the process of analyzing a small engine assembly project using Excel, focusing on calculating key economic metrics: net present worth (NPW), equivalent annual worth (EAW), and internal rate of return (IRR). Furthermore, it examines how variations in project parameters influence these metrics, providing a comprehensive sensitivity analysis for informed investment decisions.

Initially, the base-case scenario is considered with given parameters. The initial investment, fixed costs, variable costs, unit price, demand, project life, salvage value, and MARR establish the foundation for the financial analysis. Using Excel, the calculations involve determining annual cash flows, discount factors, and deriving the NPW, EAW, and IRR. The NPW aggregates discounted cash flows over the project lifespan, the EAW converts NPW into an annual equivalent, and the IRR identifies the discount rate at which NPW equals zero.

The calculations start with estimating total revenue, total variable costs, and fixed costs to determine annual net cash flows. For the base case, revenue is calculated as the product of demand and unit price, while total costs include fixed costs plus variable costs per unit times demand. The net annual cash flow is the revenue minus costs, adjusted for taxes if applicable (assumed zero here for simplicity). Discount factors are then applied for each year, based on the MARR, to compute the present value of cash flows.

In the sensitivity analysis, demand variation impacts revenue directly, affecting NPW, EAW, and IRR proportionally. When demand decreases to 17,000 units, revenue declines, reducing profitability metrics; conversely, increasing demand to 23,000 units boosts these metrics. Changes in fixed costs alter the total costs directly. A 20% reduction in fixed costs lowers expenses and improves project viability, whereas a 20% increase diminishes profitability. Similarly, variable costs influence per-unit expenses, with reductions increasing profit margins and increases diminishing them.

Excel’s financial functions, such as NPV and IRR, facilitate these calculations efficiently, allowing for scenario comparison and decision-making support. The analysis demonstrates that project profitability is sensitive to demand, fixed, and variable costs, emphasizing the importance of accurate estimations and flexibility in project planning.

In conclusion, using Excel for financial analysis provides a systematic approach to evaluate investment projects. By assessing how different parameters affect NPW, EAW, and IRR, decision-makers can better understand risk factors and critical variables influencing project success. Sensitivity analyses such as these are invaluable tools for thorough project assessment, ensuring informed and strategic investment choices.

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