The management at a pharmaceutical company is considering new computers and equipment to manage inventory and to expedite online orders and product shipment. The investment will be $100 thousand and the cost of capital is 15%.The company earned $500 thousand in sales last year and anticipates the new equipment could increase sales by 10% annually. Based on what you have learned about capital budgeting, would this be a profitable investment over the next five years?
1. Write a recommendation based on your understanding of capital budgeting.
2. Include an interpretation of the following?
- What is the discounted payback period?
- Would the investment produce a profit in five years?
- What Modified Internal Rate of Return (IRR) and Internal Rate of Return?
- should the company expect over the next five years?
- Is the NPV of the project worth the investment?
- What is the profitability index of this project?