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# Calculations determining the benefits of buying new equipment capital

Please undertake calculations in order to evaluate this project, and decide if it should be accepted or rejected.
Texas Roks, Inc. is considering a new quarry machine. The costs and revenues associated with the machine have been provided to you for analysis:

Cost of the new project \$4,000,000
Installation costs \$100,000
Estimated unit sales in year 1 \$50,000
Estimated unit sales in year 2 \$75,000
Estimated unit sales in year 3 \$40,000
Estimated sales price in year 1 \$150
Estimated sales price in year 2 \$175
Estimated sales price in year 3 \$160
Variable cost per unit \$120
Annual fixed cost \$50,000
Depreciation method 3 years straight-line method, no salvage value
Texas Rok's tax rate 40%
Texas Rok's cost of capital 13%

1. Calculate operating cash flow and the change in net working capital
2. Determine the NPV and IRR of the project
3. Should the company accept or reject the project based on the NPV? Why?
4. Should the company accept or reject the project based on the IRR? Why?
5. What is your final accept or reject decision? Why?
6. What is the payback period for this project? Would this influence your decision to accept or reject?

#### Solution Summary

Calculations determining the benefits of buying new equipment capitals are determined.

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