Question
The company plans to purchase a new piece of equipment which would cost $410,000. This equipment will have a five-year useful life and have a
The company plans to purchase a new piece of equipment which would cost $410,000. This equipment will have a five-year useful life and have a salvage value of $10,000 at the end of the five-year period. It is estimated that the company will be able to produce 10,000 units per year. The company also estimates the equipment will also have annual maintenance costs of $5,000 per year. The company estimates the selling price to be for $20 each and the variable cost to be $10. Working Capital requirements for the project are as follows: Year 0 = $12,000 Year 1 = $17,000 Year 2 = $19,000 Year 3 = $17,000 Year 4 = $8,000 It is estimated that at the end of the five-year period, the company will be able to sell the equipment for $60,000. The company has a 20% marginal tax rate and has a required rate of return of 15%.
Would you accept this project? What is the NPV? What is the IRR? What is the Payback? What is the discounted payback? Calculate profitability index.
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