You are considering purchasing a new production facility in order to expand operations. The building and machinery will cost $800,000 and be depreciated over 10 years using the straight-line method with no salvage value at the end of the equipment-life.
You require a 12% rate of return on the project. The cost and revenue information given below.
| Revenues |
|
$650,000 |
| Less: |
Materials |
70,000 |
|
Labor |
150,000 |
|
Depreciation |
80,000 |
|
Other |
10,000 |
| Income before taxes |
|
$340,000 |
| Taxes@ 40% |
|
136,000 |
| Net Income |
|
$204,000 |
1. Determine the NPV of the new facility.
2. Calculate the IRR (approximate).
3. Calculate the payback period.
4. Calculate the accounting rate of return.
5. Cite all sources and or references
6. Taking into considerations all of the calculations above, will you invest in the new production facility? Why or why not? What nonfinancial information will you consider in your decision?