Capital budgeting project-purchasing manufacturing equipmemt

Reference no: EM13205998

Details: On Your Mark is considering purchasing new manufacturing equipment that costs $1,300,000 and is expected to improve cash flows by the following values:

$500,000 in year 1
$350,000 in year 2
$475,000 in year 3
$450,000 in year 4
$300,000 in year 5

Key financial metrics for this capital budgeting project have been calculated and provided by the finance department (see below). A 14% rate of return and a payback period of less than 5 years are required for the project.
These key metrics use 6% as the weighted average cost of capital and must include the following:
Payback period
Net present value
Internal rate of return

Year 0
Year 1
Year 2
Year 3
Year 4
Year 5

($1,300,000)
500,000
350,000
475,000
450,000
300,000

pv

438,596
269,314
320,611
266,436
155,811

NPV

150,768
IRR
19%

payback
(800,000)
(450,000)
25,000
475,000
775,000

MIRR
17%
In a memo to the CFO, discuss the metrics, and make a recommendation regarding whether the company should accept or reject the project.

500–750 words

Reference no: EM13205998

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