Professional Documents
Culture Documents
Summary Summary
Data Section for 2nd Proposal Data Section for 2nd Proposal
2nd Proposal
2nd Proposal
Cash Outflows (2nd)/Chg. In Depreciation (2nd) Cash Outflows/Change in Depreciation (2nd)
The benefits exceed the costs. You should BUY the asset.
Internal Rate of Return
The IRR of 20.58% is greater than the discount rate (or required rate of return) of 12.0%.
You should BUY the asset.
Modified Internal Rate of Return
The MIRR of 16.81% is greater than the discount rate (or required rate of return) of 12.0%.
You should BUY the asset.
Payback Period
You should buy the asset only if the firm's minimum desired
payback period is 2.51 years or greater.
(2nd Proposal)
CASH OUTFLOWS @ 12% CASH INFLOWS
Cash Flow x PVF = PVB
(0) Cost of New Asset $701,391 (1) $259,493 x 0.893 = $231,690
Shipping 4,000 (2) 240,057 x 0.797 = 191,372
Working Capital 6,500 (3) 144,941 x 0.712 = 103,166
Sale Proceeds (8,000) (4) 108,221 x 0.636 = 68,776
Tax on Sale of Old Asset (11,375) (5) 104,000 x 0.567 = 59,012
(6) 0 x 0.000 = 0
(7) 0 x 0.000 = 0
(8) 0 x 0.000 = 0
(9) 0 x 0.000 = 0
(10) 0 x 0.000 = 0
_________ _________
P.V. OF COSTS = $692,516 P.V. OF BENEFITS = $654,017
SUMMARY OF FINDINGS
Proposal B
$3,500
$3,000
$2,500
Net Present Value
$2,000
$1,500
$1,000
$500
$0
14.00% 16.00% 18.00% 20.00% 22.00% 24.00% 26.00% 28.00%
Discount Rate
Cash Flows of the Project
10,000
5,000
0 0 0 0 0 0
0
(5,000)
(10,000)
(15,000)
(20,000)
(25,000)
(30,625)
(30,000)
(35,000)
1 2 3 4 5 6 7 8 9 10 11
Year