Devry BUSN379 Week 6 Course Project Part II

USN 379 Week
6 Course Project Part II
Course Project Part IIIntroduction
You will assume that you still work as a financial analyst
for AirJet Best Parts, Inc. The companyis considering a capital investment
in a new machine and you are in charge of making arecommendation on the
purchase based on (1) a given rate of return of 15% (Task 4) and (2)th
e firm’s cost of capital (Task 5
).
Task 4. Capital Budgeting for a New Machine
A few months have now passed and AirJet Best Parts,
Inc. is considering the purchase on anew machine that will increase the
production of a special component significantly. Theanticipated cash flows for
the project are as follows:
Year 1 $1,100,000 Year 2 $1,450,000 Year
3 $1,300,000 Year 4 $950,000
You have now been tasked with providing a recommendation for the
project based on theresults of a Net Present Value Analysis. Assuming that the
required rate of return is 15% andthe initial cost of the machine is
$3,000,000.
1.
What is the project’s IRR?
(10 pts)
Year Cost PVIF @15% PV0
$ (3,000,000.00) 1 $ (3,000,000.00)
1
$ 1,100,000.00 0.8696 $ 956,521.74
2
$ 1,450,000.00 0.7561 $ 1,096,408.32
3
$ 1,300,000.00 0.6575 $ 854,771.10
4
$ 950,000.00 0.5718 $ 543,165.58
IRR 22.38%
2.
What is the project’s NPV?
(15 pts)