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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.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M915016

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