Capital Budgeting with Sum-of-Years'-Digits Depreciation Bernie Company purchased a new machine, with an estimated useful life of five years and no salvage value, for $45,000. The machine is expected to produce net cash inflows from operations, before income taxes, as follows:
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1st year
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$ 9,000
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2nd year
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12,000
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3rd year
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15,000
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4th year
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9,000
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5th year
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8,000
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Bernie will use the sum-of-the-years'-digits method to depreciate the new machine. Bernie uses 10 percent for evaluating capital investments and is currently in a 24 percent income tax bracket.
Required: Set up an Excel spreadsheet to determine:
1. The payback period of the proposed investment (assume that cash inflows occur evenly throughout the year).
2. The net present value (NPV) of the proposed investment.
3. The internal rate of return (IRR) of the proposed investment.
4. The discounted payback period of the proposed project.
5. The modified internal rate of return (MIRR) of the proposed investment. Explain the difference between IRR and MIRR.