Analyzing Capital Expenditures

Assume that you have received a capital expenditure request for $52,000 for plant equipment and that you are required to do a justification analysis using capital budgeting techniques.  The company's cost of capital is 12% and the equipment (investment) is expected to generate net cash inflows of $13,000 per year for 8 years and then $9,000 for one year.

You are to calculate and explain your quantitative calculations of each of the four capital-budgeting techniques listed, then, based upon these calculations, write a summary that provides a justification to proceed or not proceed with the project.

• Calculate the project's net present value (NPV).
• Calculate the project's internal rate of return (IRR).
• Calculate the project's profitability index.  
• Calculate the project's discounted payback period.  
• Recommend whether the project should be accepted or rejected and explain why.