Determine the discounted payback period of the proposed

Question

Capital Budgeting with Sum-of-Years'-Digits Depreciation Bernie Company purchased a new machine, with an estimated useful life of five years and no salvage value, for $45,000. The machine is expected to produce net cash inflows from operations, before income taxes, as follows:

1st year	$ 9,000
2nd year	12,000
3rd year	15,000
4th year	9,000
5th year	8,000

Bernie will use the sum-of-the-years'-digits method to depreciate the new machine. Bernie uses 10 percent for evaluating capital investments and is currently in a 24 percent income tax bracket.

Required: Set up an Excel spreadsheet to determine:

1. The payback period of the proposed investment (assume that cash inflows occur evenly throughout the year).

2. The net present value (NPV) of the proposed investment.

3. The internal rate of return (IRR) of the proposed investment.

4. The discounted payback period of the proposed project.

5. The modified internal rate of return (MIRR) of the proposed investment. Explain the difference between IRR and MIRR.

Answer 1

You have to read this assignment for net cash inflows from operations, before income taxes Capital Budgeting with Sum-of-Years'-Digits Depreciation Bernie Company purchased a new machine, with an approximated helpful life of 5 years and no salvage value, for $45,000. The machine is expected to create net cash inflows from operations, before income taxes, as follows: Bernie will employ the sum-of-the-years'-digits method to depreciate the new machine. Bernie uses 10 % for evaluating capital investments and is at present in a 24 % income tax bracket. Needed: Set up an Excel spreadsheet to find out: 1. The payback period of the suggested investment (suppose that cash inflows take place evenly throughout the year). 2. The net present value (NPV) of the proposed investment. 3. The internal rate of return (IRR) of the proposed investment. 4. The discounted payback period of the proposed project.