The WXYZ Corp. is examining whether to invest in a new project, J, which is similar to its usual product lines. Find the NPV evaluated at the wacc, IRR, Payback Period and the Discounted Payback Period. Should the project be accepted based on each criteria? (You should have 4 separate answers. Also, give short reasons why you would accept or reject.

The Corp. estimates that its weighted average cost of capital (wacc ) = 12%. Its cut-off rate for IRR is 18%. Its payback period must be under 4.5 years. Its discount payback period must be under 4 years.

In order to start and complete project J, the firm needs to purchase a machine for $16,000, a building for $24,000, and initial inventory of $12,000. That is, CF0 -$52,000. It is projected that at the end of 4 years, the machine will be sold for $3,000, the building will be sold for $15,000 and the working capital will be equal to the final inventory =$12,000.

For depreciation, the 5-year modified accelerated cost recovery system( MACRS ) table [.20,.32,.19,.12,.11,.06] will be used for the machine; and the straight line,39 year live will be used for the building.

1 2 3 4

Sales 120000 122000 124000 126000

-variable costs

-fixed operating costs

-Depreciation (building)

-Depreciation (equipment)

Operating Income Before taxes (EBIT=EBT)

-taxes (40% tax rate)

Profit after taxes

Depreciation building

Depreciation machine

Cash Flow

Assume variable costs = 70% of sales

Fixed operating costs = $16,000/yr. Tax rate = 40%