Capital budgeting techniques allow managers to prioritize resources and make decisions about long-term projects and investments. Capital budget data are useful for making purchase recommendations. In this assignment, you will put capital budgeting into practice, using the background information presented below to calculate the payback period, accounting rate of return, internal rate of return, and net present value in a three-page analysis.

Background

Allgood Incorporated is considering purchasing a new machine to replace a current machine. The new machine will cost $390,000 and use working capital of $9,000. The current machine can be sold for $6,500. The new machine has a five-year useful life and no salvage value. The hurdle rate is 8 percent. If the new machine is purchased, the operating cash inflows are listed below:

Year 1 $130,000.

Year 2 $130,000.

Year 3 $130,000.

Year 4 $130,000.

Year 5 $130,000 (this includes the $9000 release of working capital).

Instructions

For this assignment, address the following:

Please do in excel and ref the cells ----if it is not in excel I will not accept it

Calculate the following elements of a capital budget (ignoring income taxes for this step):

The payback period.

Accounting rate of return.

Internal rate of return.

Assuming an income tax rate of 40 percent,

calculate the net present value.

Remember to calculate the after-tax cash flows from operations and the tax savings from depreciation expense