Capital Budgeting For the project below, you have the following cash flows The maximum payback period is 3 years, and the cost of capital is 8 Time 0 (Investment) 1 2 3 4 Ether 900,000 320,000 360,000 400,000 310,000 Calculate the internal rate of return, profit index and payback period (answer should be x xx years) Do you accept the project Explain Crane is considering a new project that will generate revenues of $18 million and operating costs (does not include depreciation or interest) of $7,000,000 annually for the next 4 years It requires an additional machine that costs $20 million dollars that will be fully depreciated to a zero book value on a straightline basis over 4 years The machine can be sold for $2,000,000 at the end of the 4 years Initial investment in net operating working capital (NOWC) is $6 million there is no additional NOWV investment, but $1 2 million will be returned at the end of year 4 Tax rate is 25 The cost of capital is 10 Interest expense is $2 million per year Find the net present value (NPV) for the project Based on your answer to part a, should they accept the project Explain How would the answer change if the machine could be expensed immediately You do NOT need to rework the problem to answer this question

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Capital Budgeting

For the project below, you have the following cash flows. The maximum payback period is 3 years, and the cost of capital is 8%.

Time	0 (Investment)	1	2	3	4
Ether	-900,000	320,000	360,000	400,000	310,000

Calculate the internal rate of return, profit index and payback period (answer should be x.xx years). Do you accept the project? Explain.

Crane is considering a new project that will generate revenues of $18 million and operating costs (does not include depreciation or interest) of $7,000,000 annually for the next 4 years. It requires an additional machine that costs $20 million dollars that will be fully depreciated to a zero-book value on a straightline basis over 4 years. The machine can be sold for $2,000,000 at the end of the 4 years. Initial investment in net operating working capital (NOWC) is $6 million; there is no additional NOWV investment, but $1.2 million will be returned at the end of year 4. Tax rate is 25%. The cost of capital is 10%. Interest expense is $2 million per year.
1. Find the net present value (NPV) for the project.
2. Based on your answer to part a, should they accept the project? Explain.
3. How would the answer change if the machine could be expensed immediately? You do NOT need to rework the problem to answer this question.