Norberto Garcia, general manager of the Argentinean subsidiary of Innovation Inc. is considering the purchase of new industrial equipment to improve efficiency at its Cordoba plant. The equipment has an estimated useful life of eight years. The estimated cash flows for the equipment are shown in the table that follows, with no anticipated change in working capital. Innovation has an 18% required rate of return. Assume depreciation is calculated on a straight-line basis. Assume all cash flows occur at year-end except for initial investment amounts. (Click the icon to view the estimated cash flows for the equipment.) E: (Click the icon to view the present value factor table.) E (Click the icon to view the present value annuity factor table.) Required Requirement 1. a. Calculate the NPV (net present value) of the new industrial equipment. (Round your answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) Net Cash Total Present Annuity PV factor at i=18%, n=8 Inflow Value Net present value Present value of annuity of equal annual net cash inflows 4.078 $ 45,000 per year $ 183,510 (140,000 Net initial investment 43,510 Net present value b. Calculate the investment's payback period. (Round your answer to two decimal places.) The payback period is 3.11 years. c. Calculate the investment's internal rate of return (IRR) using a trial-and-error approach and straight-line interpolation as necessary. (Round all interim calculations to three decimal places and the IRR to two decimal places, XXX%.) The IRR (internal rate of return) is 27.58% Requirement 2. Compare and contrast the capital budgeting methods in requirement 1 by completing the following sentences. consider(s) only cash flows up to the time when the expected future cash inflows recoup the net initial investment in a project. V use(s) a discounted cash flow approach in which all expected future cash inflows and cash outflows of a project are measured as if they occurred at a single point in time. Norberto Garcia, general manager of the Argentinean subsidiary of Innovation Inc., is considering the purchase of new industrial equipment to improve efficiency at its Cordoba plant. The equipment has an estimated useful life of eight years. The estimated cash flows for the equipment are shown in the table that follows, with no anticipated change in working capital. Innovation has an 18% required rate of return. Assume depreciation is calculated on a straight-line basis. Assume all cash flows occur at year-end except for initial investment amounts. B (Click the icon to view the estimated cash flows for the equipment.) E: (Click the icon to view the present value factor table.) : (Click the icon to view the present value annuity factor table.) Required . Requirement 1. a. Calculate the NPV (net present value) of the new industrial equipment. (Round your answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) Net Cash Total Present Annuity PV factor n=8 Inflow Value The IRR method $ 45,000 per year $ The NPV and IRR methods 183,510 (140,000) The NPV and payback methods 43,510 1 The NPV method bund your answer to two decimal places.) The NPV, payback and IRR methods n (IRR) using a trial-and-error approach and straight-line interpolation as necessary. (Round all interim calculations to three decimal places and the IRR to two decimal places, X.XX%.) The payback and IRR methods The payback method 1 al budgeting methods in requirement 1 by completing the following sentences. consider(s) only cash flows up to the time when the expected future cash inflows recoup the net initial investment in a project. use(s) a discounted cash flow approach in which all expected future cash inflows and cash outflows of a project are measured as if they occurred at a single point in time
