Drexel Manufacturing (DM) is a leading firm in the creation of environmentally safe containers. DM is considering purchasing new technologically advanced equipment that will not only increase production capabilities but also save the firm money on daily operating expenses. The new investment is estimated to cost $5,250,000. It has a five-year useful life. Given the greater speed of the new equipment, you believe units sold would rise by 500,000 and are estimated to sell at $10 each. It costs $5 per unit to produce. You forecast a savings on operating expenses of $500,000 per year. Start-up net working capital is estimated at $300,000. After five-years, you estimate new technology will be available and believe you can sell the current equipment for $425,000. The current tax rate is 25% and the required rate of return is 8.75%. Calculate the payback period, NPV and IRR

Drexel Manufacturing (DM) is a leading firm in the creation of environmentally safe containers. DM is considering purchasing new technologically advanced equipment that will not only increase production capabilities but also save the firm money on daily operating expenses. The new investment is estimated to cost $5,250,000. It has a five-year useful life. Given the greater speed of the new equipment, you believe units sold would rise by 500,000 and are estimated to sell at $10 each. It costs $5 per unit to produce. You forecast a savings on operating expenses of $500,000 per year. Start-up net working capital is estimated at $300,000. After five-years, you estimate new technology will be available and believe you can sell the current equipment for $425,000. The current tax rate is 25% and the required rate of return is 8.75%. Calculate the payback period, NPV and IRR

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 2TP: Austins cell phone manufacturer wants to upgrade their product mix to encompass an exciting new...

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