AC556 Week 4 Capital Budgeting Practice problem

You have the following data about a proposed project:
Cost of new equipment
Increase need for Working Capital (to be released at end of project)
Length of project
Salvage Value of equipment at end of project
Annual cash savings if equipment is purchased
Tax rate
Discount rate required of all investements

$80,000
$20,000
6 years
$8,000
$28,500
35%
14%

Required:
1. What is the annual accounting income?
2. What is the annual after tax cash flow?
3. What is the payback based upon the initial cash outflows?
4. What is the discounted payback based on the initial cash outflows?
5. What is the simple rate of return based upon the initial cash outflows?
6. What is the net present value?
7. What is the net present value
8. What is the internal rate of return
9. Would you recommend this project? Why or why not.
Note: The solutions do not use formulas. It is highly recommended that student
use formulas when preparing the worksheet for their own Week 4 solution.