You are considering purchasing a new production facility to expand operations. The building and machinery will cost $800,000 and be depreciated over 10 years using the straight-line method with no salvage value at the end of the equipment-life. You require a 12% rate of return on the project.
The cost and revenue information follows in the table below:
| Revenues |
|
$650,000 |
| Less: |
Materials |
70,000 |
|
Labor |
150,000 |
|
Depreciation |
80,000 |
|
Other |
10,000 |
| Income before taxes |
|
$340,000 |
| Taxes @ 40% |
|
136,000 |
| Net Income |
|
$204,000 |
1. Determine the NPV of the new facility.
2. Calculate the IRR (approximate).
3. Calculate the payback period.
4. Calculate the accounting rate of return.
Taking into considerations all the calculations above, will you invest in the new production facility? Why or why not? What nonfinancial information will you consider in your decision?
Save your assignment as a Microsoft Excel spreadsheet. (Mac users, please remember to append the ".xlsx" extension to the filename.) The name of the file should be your first initial and last name, followed by an underscore and the name of the assignment, and an underscore and the date.