Question
Your company is looking at updating its production process by adding a new piece of equipment. The company uses a 9% cost of capital in
Your company is looking at updating its production process by adding a new piece of equipment. The company uses a 9% cost of capital in its capital budgeting decisions. The new equipment will cost $350,000 and the company expects the following annual cash flows for 5 years as a result of the purchase (note that year 1 is negative): Year 1 (10,000) Year 2 45,000 Year 3 127,000 Year 4 168,000 Year 5 145,000 A) Calculate the Net Present Value (NPV) of the acquisition project.
B) Calculate the Internal Rate of Return (IRR) of the acquisition project.
C) Should the company purchase the new equipment? Explain.
Show in excel with formulas please!
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