Explore BrainMass

Explore BrainMass

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

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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.

    © BrainMass Inc. brainmass.com June 4, 2020, 2:46 am ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/william-s-pharmaceutical-calculate-npv-irr-profit-index-477781

    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.

    $2.19

    ADVERTISEMENT