New-Project Analysis

The Campbell Company is evaluating the proposed acquisition of a new milling machine.

The machine's base price is $108,000, and it would cost another $12,500 to modify it for special use.The maintenance cost of the machine is RM30,000 per annum. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000.The Campbell Company will also spend about RM60,000 for promotional activities of the product in year 1 .At the early stage,Company needs an increase in net working capital of RM5,500. This figure will have to be increased to RM10,000 at the end of second year. This investment in net working capital is assumed to be fully recovered in the fifth year.

The milling machine would have no effect on revenues, but it is expected to save the firm $44,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 35%.

Campbell Company Should accept or reject this proposed project based on Net Present Value (NPV), Internal Rate of Return (IRR), Modified Internal Rate of Return (MIRR), Payback Period and Discounted Payback Period evaluation methods? Show your calculations.