Capital Budgeting Data

Suppose that your selected company is considering adding a potential investment project to its portfolio. Using the information below for a possible investment calculate the following figures:

The net present value $($NPV$)$ of the project $($Accept or Reject from the drop$-$down box$)$

The internal rate of return $($IRR$)$ of the project $($Accept or Reject from the drop$-$down box$)$

What are the implications of these calculations? In other words, based on each of the calculations, and working to balance portfolio risk with return, would you recommend that the company pursue the investment? Why, or why not? Support your claims.

What is the difference between NPV and IRR? Which one would you choose for evaluating a potential investment and why? Support your reasoning with evidence$\mathrm{.}1.$ Capital Budgeting Example Setup

Initial investment $$17,000,000$

Straight$-$line depreciation of $20\%$

Income tax rate $=20\%$

WACC: use $5\%$

Cash Flows $($sales revenue based upon this

purchase of new equipment, are projected

to be as follows$)$:

CF$1$: $$4,390,000$

CF$2$: $$4,200,000$

CF$3$: $$4,500,000$

CF$4$: $$5,000,000$

CF$5$: $$4,700,000$

Operating Costs

CF$1$: $$700,000$

CF$2$: $$700,000$

CF$3$: $$225,000$

CF$4$: $$350,000$

CF$5$: $$400,000$