Capital Budget
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A project requires an initial investment of $300,000 to purchase a processing equipment. This equipment will be depreciated on a straight line schedule over 5 years.
The sales revenue is $400,000 each year for three years and the cost is $200,000 each year for three years. At the end of the third year, the equipment will be sold at its book value.
The working capital required is $100,000 at t=0, $120,000 at t=1, $120,000 at t=2, and 0 at t=3.
The tax rate is 40%, and the cost of capital 15%.
Calculate NPV, IRR, payback period, and profitability index of the project.
As part of the solution, please view the attached excel spreadsheet. To fully understand the solution the empty fields in the table should be filled out.
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