Roten Manufacturing Company is considering an investment on a machine for producing auto parts. The machine costs $250,000 today, will have a five-year life and will be depreciated over a five-year life on a straight-line basis toward a zero salvage value. The company paid a consulting company $7,000 last year to help them decide whether there is a sufficient demand for the auto parts. In addition to the investment on the machine, the company also invests $15,000 in net working capital. The company has estimated the performance of the new machine and believes the following are good estimates of the new asset: sales $140,000 per year, cost of goods sold (35% of sales) per year, and administrative expenses $15,000 per year. The company pays interest $20,000 annually on average, has a 10% cost of capital and a 30% tax rate. Answer Questions 1 - 8.

Question 5

What is NPV for the project?

a.

$2,845.48

b.

-$31,469.12

c.

$1,653.45

d.

-$6,468.34

Question 6

What is IRR for the project?

a.

10.41%

b.

9.04%

c.

11.73%

.

8.52%

Question 7

What is PI for the project?

a.

1.01

b.

0.98

c.

0.94

1.89

Should Roten accept the project?

	a.	No
	b.	Yes