Capital budgeting tools. Scotty’s Pickle Factory is considering purchase of a new machine to supplement his operations. After a long, drawn-out process, his financial team has come up with estimates regarding the project. First, they think the initial addition to net capital spending will be $657,000. In addition, they believe they will have to change their level of net working capital from

$109,000 to $176,500. They have created the following pro forma statements for each year. Scotty’s required WACC is 6.74%.

(a) What is the project’s payback period?

(b) What is the project’s discounted payback period?

(c) What is the project’s net present value?

(d) What is the project’s profitability index?

(e) What is the project’s internal rate of return?

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Year 1 Year 2 Year 3 Year 4 Sales $900,000 $960,000 $1,025,000 $650,000 COGS 350,000 373,333 398,611 252,778 Depreciation 218,978 291,971 97,367 48,684 EBIT 331,022 294,696 $29,022 348,538 Taxes (21%) 69,515 61,886 111,095 73,193 Net income 261,507 232,810 417,927 275,345