Quasar Tech Co. management is investing $9 million in new machinery that will produce the next-generation routers.
Question:
Quasar Tech Co. management is investing $9 million in new machinery that will produce the next-generation routers. Sales to its customers will amount to $1,756,000 for the next three years and then increase to $2.5 million for three more years. The project is expected to last six years and operating costs, excluding depreciation, will be $898,620 annually. The machinery will be depreciated to a salvage value of $0 over 6 years using the straight-line method. The company's tax rate is 30 percent, and the cost of capital is 16 percent.
What is the payback period? What is the average accounting return (ARR)? Calculate the project NPV. What is the IRR for the project?
Fundamentals of Corporate Finance
ISBN: 978-1119371403
4th edition
Authors: Robert Parrino, David S. Kidwell, Thomas Bates