Question
Please show the calculations and formula BT Ventures (BT) is considering two new pieces of equipment for this year's capital budget. The first is a
Please show the calculations and formula
BT Ventures (BT) is considering two new pieces of equipment for this year's capital budget. The first is a milling machine and the second is a hydraulic lift. The projects are independent. The cash outlay for the milling machine is $35,000 and $44,000 for the lift. The firm's cost of capital is 17%. After-tax cash flows, including depreciation, are as follows:
Year Milling Machine Lift
1 $13,000 $12,000 2 13,000 12,000 3 13,000 12,000 4 13,000 12,000 5 13,000 12,000
a. Calculate the NPV for each project.
b. Based on NPV, what is the correct accept/reject decision for each project?
c. Calculate the IRR for each project.
d. Based on IRR, what is the correct accept/reject decision for each project?
e. Calculate the payback period for each project.
f. If BT has a policy of only accepting projects with a 3-year or less payback period, what would be the
accept/reject decision for each project based on payback period?
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