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    Calculate the NPV, IRR, Profitability Index, Payback Period

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    New equipment would permit the manufacture of 100,000 additional spark plugs every year. It will have a useful life of 5 years with no salvage value. The equipment will be depreciated using straight-line method. The plugs sell for $20 and cost $8 to manufacture using the new equipment. Indirect costs are remain the same. The equipment cost $3,000,000 to purchase and install. Company's tax rate is 34%.

    The capital structure will remain intact in financing this equipment. Cost of capital is 10.8%. Calculate the NPV, IRR, Profitability Index, and Payback Period for the project.

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    Solution Summary

    Your tutorial is in excel, attached. The after tax cash flows are mapped out for you and instructional notes are next to the computations to assist you.