1) Dylan’s Donuts is considering of buying a piece of equipment. New equipment would be expected to rise sales by= $350,000 a year and rise operating expenses by= $105,000 a year. New equipment would cost= $1,260,000 and be depreciated by using straight-line to zero salvage value over depreciable life of eight years. Equipment would need extra net working capital of= $24,000. It is expected that Dylan’s Donuts could sell equipment at the ending of its expected life for= $15,000. Dylan’s marginal tax rate is= 30% and its required rate of return is= 12%. Dylan’s has the minimum required payback of three years.
(i) Find out if project is valuable by using payback method.
(ii) Compute the MIRR of project.