Create a 5-year capital budget for the project below assuming the following. 1.$500,000 initial outlay for purchase

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Question:

Create a 5-year capital budget for the project below assuming the following.

1.$500,000 initial outlay for purchase of new machine for a 5-year contract the company was awarded from a customer.

2.The company will have to rent new space for $50,000/year to put machine in.

3.A one-time, year 1 cost to set up the machine and get it running will be $200,000.

4.The machine is expected to generate revenue beginning in year 2.

The machine will generate around $150,000 in year 2...that number will increase by about 10% per year thereafter.

5.Machine is depreciated using S/L depreciation.

6.The company hasa flat tax rate of 25%.

7.The discount rate is 9%.

Build a 5-year capital budget that includes all of the above items and shows EBITDA, EBT, Taxes Paid, Net Income, and cash flow per year.

Then calculate NPV and IRR. Should the company undertake the project? Why or why not?