Finance Project 2 - Igor Kukharenko BUSN 379 Anthony Peak...

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Igor Kukharenko 03/31/2011 BUSN 379 Anthony Peak Course Project Part II Introduction You will assume that you still work as a financial analyst for AirJet Best Parts, Inc. The company is considering a capital investment in a new machine and you are in charge of making a recommendation on the purchase based on (1) a given rate of return of 15% (Task 4) and (2) the firm’s cost of capital (Task 5). Task 4. Capital Budgeting for a New Machine A few months have now passed and AirJet Best Parts, Inc. is considering the purchase on a new machine that will increase the production of a special component significantly. The anticipated cash flows for the project are as follows: Year 1 $1,100,000 Year 2 $1,450,000 Year 3 $1,300,000 Year 4 $950,000 You have now been tasked with providing a recommendation for the project based on the results of a Net Present Value Analysis. Assuming that the required rate of return is 15% and the initial cost of the machine is $3,000,000. 1. What is the project’s IRR? (10 pts) The IRR for the project is 22.38% 2. What is the project’s NPV? (15 pts) The NPV for the project is 450,867.00 3. Should the company accept this project and why (or why not)? (5 pts)
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I think YES. By looking at the IRR I think that company should accept this project to do Internal Rate Return is much bigger than Required Rate of Return also Net Present Value is positive. 4. Explain how depreciation will affect the present value of the project. (10 pts) Depreciate of this project will increase in project present value by looking at the scenario, also would decrease the amount of taxes. 5. Provide examples of at least one of the following as it relates to the project: (5 pts each) a. Sunk Cost- costs that are can’t be recovered because they have been incurred. For Example - AirJet Best Parts, Inc. paid $950,000 dollar upfront for all permits they needed for their company. AirJet Best Parts, Inc. wants to
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This note was uploaded on 07/10/2011 for the course FINANCE 304 taught by Professor Na during the Spring '11 term at DeVry Bellevue.

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Finance Project 2 - Igor Kukharenko BUSN 379 Anthony Peak...

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