Overhaulin'

NPV,IRR help?

The managers of Poncho Parts, Inc. plan to manufacture engine blocks for classic cars from the 1960s era. They expect to sell 250 blocks annually for the next 5 years at a sales price of $3,000. The necessary foundry and machining equipment will cost a total of $800,000 and will be depreciated on a straight-line basis to zero for tax purposes over the project's 5 year life. The salvage value of the manufacturing equipment is $0 at the end of the project. Labor and materials costs total $500 per engine block plus fixed costs are $125,000 per year. Assume a 35% tax rate and a 12% discount rate. Determine the following for this project. a) Payback b) NPV c) Profitability index d)IRR e) Do you recommend this project? Why?

Public Comments

1. You've left out a lot of things necessary for an accurate caluclation. what is the startup costs? what is the investment (how else to calcuate payback?) NPV$778,226.03 IRR163% Working is as follows. 1 2 3 4 5 Sales750,000 750,000 750,000 750,000 750,000 FC(125,000)(125,000)(125,000)(125,000)(125,000) VC(125,000)(125,000)(125,000)(125,000)(125,000) EDITDA500,000 500,000 500,000 500,000 500,000 Dep(160,000)(160,000)(160,000)(160,000)(160,000) EBT340,000 340,000 340,000 340,000 340,000 Tax(119,000)(119,000)(119,000)(119,000)(119,000) NI221,000 221,000 221,000 221,000 221,000 Projected Cash Flow Statement for FCF 12345 EBIT(1-Tax Rate)340,000 340,000 340,000 340,000 340,000 Less: Cap Exp(800,000)0 0 0 0 Add: Depreciation160,000 160,000 160,000 160,000 160,000 FCF(300,000)500,000 500,000 500,000 500,000 PV value(300,000)446,429 398,597 355,890 317,759