Your company is evaluating new equipment that will cost $2,000,000. The equipment is in the MACRS 3-year class and will be sold after 3 years for $150,000. Use of the equipment will increase net working capital by $200,000. The equipment will save $900,000 in operating costs each year for 3 years. The company's tax rate is 35 percent and its cost of capital is 12%.
A. Calculate the cash flow in year 0.
B. Calculate the incremental operational cash flows. Reference MACRS Depreciation Percentages for three-year class life assets:
0.3333 0.4445 0.1481 0.0741
C. Calculate the non-operating terminal year cash flow.
D. Calculate the project's payback period
E. Calculate the project's NPV.
F. Caluclate the project's IRR.
G. Caluclate the project's MIRR.
H. Investment Decision: Should the project be accepted or rejected? Why or Why not?