1-Use all of the information given / calculated in section one and via calculator calculate the

questions given below. As a financial manager for each section discuss whether the project is

acceptable or not.

a) Apply the Net Present Value and comment on your result.

b) Apply the Internal Rate of Return and comment on your result.

c) Apply the Payback Period and comment on your result. (Assume that preset time is 5

years)

d) Apply the Discounted Payback Period and comment on your result. (Assume that

preset time is 5 years)

e) Apply the Profitability Index and comment on your result.

f) Which technique is best and why?

The Easterwood Corporation Capital Budgeting.

Cost of new plant and equipment: $ 20,900,000

Shipping and installation cost: $ 300,000

Unit Sales: Year Unit sold

1 100,000

2 130,000

3 160,000

4 100,000

5 60,000

Sales price per unit: $500 / unit in years 1-4, $380 / unit in year 5

Variable cost per unit: $260 / unit

Annual fixed costs: $ 300,000

Net Working Capital (NWC) Requirement: There will be an initial working capital

requirement of $ 500,000 just to get production started. Then, additional net working

capital investment each year equal to 7% of the dollar value of sales for that year.

Finally, 90% of net working capital will be liquidated at the termination of the project

at the end of year 5.

The Depretiation Method: Seven-year MARCS percentage will be used. It is

assumed that the plan. In five year, this equipment can be sold for about 20% of its

acquisition cost..

Assume that the tax rate is 35% and the required return is 25%.

Assume that Dophical Corporation has hired you as the financial assistant to prepare a Pro

Forma Income Statement.