Question

In: Finance

NOK Plastics is considering the acquisition of a new plastic injection-molding machine to make a line...

NOK Plastics is considering the acquisition of a new plastic injection-molding machine to make a line of plastic fittings. The cost of the machine and dies is $125,000. Shipping and installation is another $8,000. NOK estimates that new project will require $7,500 in inventory, and result in a $7,500 increase in accounts receivable and $5,000 increase in accounts payable. The latter three will be recovered at the end of the life of the equipment.

Sales of the new plastic fittings are expected to be $350,000 annually. Cost of goods sold are expected to be 50% of sales. Additional operating expenses are projected to be $115,000 per year over the machine’s expected 5-year useful life. The machine will depreciated using a 5-year MACRS class life. The equipment will be sold at the end of its useful life (5 years) for $35,000.

The tax rate is 25% and the relevant discount rate is 15%.

  1. In Excel calculate the following:
  • net present value (NPV)
  • Internal rate of return (IRR)
  • Payback period (PB)
  • Profitability index (PI)
  1. State whether the project should be accepted.

This question has been asked, but I don't know the formulas that he used. Could someone please help me with how to set this up in excel?

Solutions

Expert Solution

Excel formulas:

Book value of asset is calculated by deducting depreciation from cost of asset. And then gain is calculated. After that Multiply the gain with (1- Tax Rate). This will give you after tax cash flow from the asset.


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