Capital Budgeting Decision

A company is considering purchasing equipment costing $200,000 to expand their business. The equipment is expected to have a useful life of 5 years with no disposal value. The companys required rate of return is 14%. The estimated savings in cash operating costs are as follows:

Year Amount

1 80,000

2 70,000

3 30,000

4 50,000

5 75,000

Please compute the following using Excel functions, where applicable, and not present value tables:

1. Payback Period
2. Discounted Payback Period
3. Net Present Value
4. Internal Rate of Return

The payback period and discounted payback period should be rounded to 2 decimal places. Discounted cash flow amounts should be rounded to the nearest dollar. The internal rate of return should be rounded to 2 decimal places as a percentage.

Explain if the capital budgeting proposal should be accepted or rejected based on your computations.