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Net Present Value, Modified Internal Rate of Return and Regular Payback

Pure Life (a juice company) owns a building, which is fully depreciated.

Equipment Cost: $200,000. plus an additional $40,000. for shipping and installation
Inventories would rise by $25,000. and accounts payable would go up by $5,000. All of these costs would be incurred at t =0.

The machinery could be depreciated under the MACRS system as a 3-year property. Applicable depreciation rates are 33%, 45%, 15% and 7%.

The project will operate for 4 years and will then be terminated. Cash flows are assumed to being 1 year after the project is undertaken, or at t=1 and will continue out to t=4. At the end of the project, (t=4), the equipment is expected to have a salvage value of $25,000.

Unit sales are expected to total 100,000 cans per year and the expected sales price is $2.00 per can. Cash operating costs are expected to total 60% of dollar sales. Pure Life's tax rate is 10%.

How do I calculate the project's NPV, IRR, MIRR and regular payback?

Solution Summary

Net Present Value, Modified Internal Rate of Return and Regular Payback are investigated. The solution is detailed and well presented. The response received a rating of "5/5" from the student who originally posted the question.

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