The Blazer Corporation is considering investing in a piece of equipment that will enable them to produce a new
product for a new market. Using the information provided, calculate the specified items and answer the following questions:
1. What are the payback period, initial ROI and net present value of this project?
2. Would you recommend investing in this project? What facts and factors went into your decision and why?
3. If you were comparing this project to another potential project with an NPV of $18,000 and 14%, in which project would you invest?
4. Now think about risk management. What uncertainties about the future might make you think about not going ahead with this project? Why?
Show your work so that the reader can see that you understand the concept and how you arrived at the numbers and decisions that you present. Items 2-4, answer in word format
Cost of equipment $75,250.00
Installation cost $2,450.00
Annual maintenance contract (yearly cost) $1,200.00
Estimated life of the equipment - 5 years
Estimated Net income from sales of product the machine makes Dollars Present Value
Year 1 $14,000.00 $13,565.89
Year 2 $23,000.00 $21,595.76
Year 3 $27,500.00 $25,020.36
Year 4 $32,500.00 $28,652.64
Year 5 $9,000.00 $7,688.54
Total $106,000.00 $96,523.19
Blazer's Weighted Average Cost of Capital - 3.20%
Blazer's desired ROI on projects - 200.00%
Annual Maintenance Contract Dollars Present Value
Year 1 $0.00 $0.00
Year 2 $1,200.00 $1,126.74
Year 3 $1,300.00 $1,182.78
Year 4 $1,400.00 $1,234.27
Year 5 $1,500.00 $1,281.42
Total $5,400.00 $4,825.21