Finance Question - Capital Budget

Based on the inputs below prepare a capital budget analysis using the Net Present Value, Internal Rate of Return and Payback in years methods of determining whether the project is feasible. Please show your spreadsheet calculations and your

final determinations of “go” or “no go” on the project.

Project Inputs:

WACC – the cost of capital is 10.0%

Project Investment Outlay, Year 0 - $200,000

Project Investment Life – 10 years

Project Depreciation - $20,000 / year

Project Salvage Value - $10,000

Working Capital Base of Annual Sales – 10%

Expected inflation rate per year – 5%

Units sold per year – 25,000

Selling Price per Unit, Year 1 - $35

Fixed operating costs per year

excluding depreciation - $150,000

Manufacturing costs per unit, Year 1 - $25.20