Vitron is considering an investment in new capital equipment that will cost 250,000 plus an additional 15,000 investment in inventory to operate the equipment. They expect sales to increase by 177,000 a year for the next 6 years. Vitron executives are expecting expenses and costs to generate those sales will be 93,000 per year for the next 6 years. The company is in a 30% tax rate and is depreciating the equipment to a salvage value of 25,000 using straight line depreciation over its six year life. The company expects to recover the investment in inventory in year 6, and expects the equipment will be sold for 50,000. The cost of capital for Vitron is 12%.
1.) Construct a capital budget for Vitron. Show all work and the total after-taz cash flows for years 0-6.
2.) What is the NPV of the investment?
3.) What is the IRR of Vitron's investment in capital equipment?
4.) Should Vitron accept or reject the project? Why?