Hello,

I have the following Excel homework problem:

Pappy's Potato has come up with a new product, the Potato Pet (they are freeze-dried to last longer). It is expected that Potato Pet will generate sales of $575,000 per year. The fixed costs associated with this will be $200,000 per year, and variable costs will amount to 25 percent of sales. The equipment necessary for production of the Potato Pet will cost $950,000 and will be depreciated to zero in a straight-line manner for the four years of the product life. (As with all fads, it is felt the sales will end quickly. The salvage value of the equipment will be zero at the end.) The equipment will require an increase in working capital (spare parts inventory) of $8,000 at the beginning, which will be recaptured at the end. Pappy's is in a 35 percent tax bracket and has a required return of 15 percent.

1.Compute the NPV, IRR, and payback period of the project? Is the project acceptable?Why or why not?

I got the following answer:

NPV: -286,966.96

IRR: -.68%

Payback Period: 0

The project is not acceptable for three reasons: (1) the NPV is negative; (2) the IRR is less than the rate of return (or cost of capital) of 15%; and (3) the payback period is 0, meaning that the firm will never recover its initial investment in the project.

I just want to make sure I'm on the right track. I am also attaching a screenshot of the Excel workbook that I used to calculate my answers.