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    William's Pharmaceutical: Calculate NPV, IRR, profit index

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    I need help getting started with the following:

    The management at William's Pharmaceutical is considering new computers and equipment to manage inventory and to expedite online orders and product shipment. The investment will be $100,000 and the cost of capital is 15%. The company earned $500,000 in sales last year and anticipates the new equipment could increase sales by $50,000 in the first year, $60,000 in the second and third years, and $70,000 in the fourth and fifth years.

    I have to write a recommendation of my understanding of capital budgeting. Some assistance interpreting the following would be greatly appreciated:

    - Based on the discounted payback period, would the investment produce a profit within five years?
    - Calculate the NPV, the IRR, and profitability index (PI) for the project
    - Use your calculations to make recommendations concerning the potential profitability of this investment.

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    Solution Preview

    I would accept the project. It generates a healthy net present value meaning that the present value of the future cash flows discounted at 15% exceeds the ...

    Solution Summary

    Your tutorial is in Excel (attached) and includes a conclusion and a reference on this capital budgeting problem.