Question 9

YZA Enterprises is planning to invest in a new production line with a project life of 8 years. The initial investment required is $800,000, and the project will generate annual revenue of $250,000. Operating costs are projected at $80,000 per year. The equipment will have a salvage value of $70,000 at the end of the project life. The corporate tax rate is 27%, and the appropriate discount rate is 10%.

Requirements:

1. Compute the NPV of the project.
2. Determine the IRR.
3. Calculate the discounted payback period.
4. Assess the impact of an increase in initial investment by 10% on the NPV.
5. Recommend if the investment should be made based on financial analysis.