SAC is considering the purchase of new equipment to manufacture specialty spark plugs. The new equipment would allow the firm to manufacture 100,000 additional spark plugs per year and is expected to have a useful life of 5 years and to have no salvage value at that time. SAC will depreciate the equipment using the straight-line method. Specialty spark plugs are selling for an average price of $20 and are expected to cost $8 to manufacture with the new equipment. Indirect costs are expected to remain the same. The equipment will cost $3,000,000 to purchase and install. SAC’s tax rate is 34%.
The company has the following capital structure and intends to keep its capital structure intact in financing this equipment. Using a cost of capital of 10.8%, calculate the NPV, IRR, Profitability Index, and Payback Period for the project on an Excel spreadsheet. Should the project be accepted? Describe how you arrived at your recommendation and show your work.
•Evaluate capital budgeting projects using appropriate analytical tools
Are you looking for a similar paper or any other quality academic essay? Then look no further. Our research paper writing service is what you require. Our team of experienced writers is on standby to deliver to you an original paper as per your specified instructions with zero plagiarism guaranteed. This is the perfect way you can prepare your own unique academic paper and score the grades you deserve.
Contact our live support team for any assistance or inquiry.