You are considering purchasing a new production facility to expand operations. The building and machinery will cost $800,000 and be depreciated over 10 years using the straight-line method with no salvage value at the end of the equipment life. You require a 12% rate of return on the project.

The cost and revenue information follows in the table below:

Revenues $650,000

Less Materials $70,000

Labor $150,000

Depreciation $80,000

Other $10,000

Income before Taxes $340,000

Taxes @ 40% $136,000

Net Income $204,000

1. Determine the NPV of the new facility.
2. Calculate the IRR (approximate).
3. Calculate the payback period.
4. Calculate the accounting rate of return.

Taking into consideration all the calculations above, will you invest in the new production facility? Why or why not? What nonfinancial information will you consider in your decision?

Answer rating: 100% (QA)

To determine the Net Present Value NPV Internal Rate of Return IRR Payback Period and Accounting Rate of Return ARR of the new facility we will use th... View the full answer