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Project Valuation and Analysis

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5. Project Valuation and Analysis: Suppose a new machine costs $59,000 today. It will yield $11,000 in after-tax savings each year for 7 years and you sell the machine for $4,000 in the 7th year.
a. Given an opportunity cost of capital of 8%, what is the NPV of this project?

b. What is the IRR of this project?

c. What is the payback period for this project?

d. What is the discounted payback period for this project?

e. What is the profitability index for this project?

In excel format

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Solution Summary

IRR, payback period, discounted payback period and profitability index for a project are worked out in Excel.

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Cost of new machine $59,000
After-tax savings $11,000 per year
Term (years) 7
Salvage value $4,000

QUESTION A
Opportunity cost 8%
NPV=(After-tax savings*(1-(1/(1+Opportunity cost)^term)))/Opportunity cost)+(Salvage value/(1+opportunity cost)^term)-Cost of new ...

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