A company is considering purchasing equipment costing $200,000 to expand their business. The equipment is expected to have a useful life of 5 years with no disposal value. The company’s required rate of return is 14%. The estimated savings in cash operating costs are as follows:
Year Amount
1 80,000
2 70,000
3 30,000
4 50,000
5 75,000
Please compute the following using Excel functions, where applicable, and not present value tables:
Payback Period
Discounted Payback Period
Net Present Value
Internal Rate of Return
The payback period and discounted payback period should be rounded to 2 decimal places. Discounted cash flow amounts should be rounded to the nearest dollar. The internal rate of return should be rounded to 2 decimal places as a percentage.
Explain if the capital budgeting proposal should be accepted or rejected based on your computations.
