Question

You are required to use a financial calculator or spreadsheet (Excel) to solve the following capital budgeting problem (sample questions and solutions are provided for guidance): Windrunner Corp. is considering a new machine that requires an initial investment of $800,000 installed, and has a useful life of 10 years. The expected annual after-tax cash flows for the machine are $120,000 during the first 5 years, $150,000 during years 6 through 8 and $180,000 during the last two years.

(iii) Calculate the Net Present Value (NPV) at the following required rates of return: (a) 9% (b) 10% (c) 11% (d) 12%

iv) Using IRR and NPV criterion, comment if the project should be accepted or rejected at the following required rates of return: (a) 9% (b) 10% (c) 11% (d) 12%

(v) Plot the Net Present Value profile (NPV on Y axis and rates of return on X-axis).

Answer 1