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Deletion

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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?
IRR % IRR= 22.38%
2. What is the project’s NPV?
NPV NPV= $3,450,866.74
3. Should the company accept this project and why (or why not)?
I believe the company should look into this. The IRR is greater than the Required Rate of Return and the overall NPV is a gain. There does not appear to be a loss in this asset.
4. Explain how depreciation will affect the present value of the project.
Depreciation would cause the project's PV to go up. This would be a good thing when considering the amount of taxes the company would save.
5. Provide examples of at least one of the following as it relates to the project:
a. Sunk Cost: costs that are non-recoverable and shouldn't be used when considering an investment decision. An example of this would be AirJet has already purchased delivery trucks to deliver parts to vendors/customers. This cost would not be taken into consideration because it has

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