CAPITAL BUDGETING RECOMMENDATION :

The management at a pharmaceutical company is considering new computers and equipment to manage inventory and to expedite online orders and product shipment. The investment will be $100 thousand and the cost of capital is 15%. The company earned $500 thousand in sales last year and anticipates the new equipment could increase sales by 10% annually. Based on what you have learned about capital budgeting, would this be a profitable investment over the next five years?

Assignment

Write a recommendation based on your understanding of capital budgeting. Include an interpretation of the following?

 

What is the discounted payback period?Would the investment produce a profit in five years?What Modified Internal Rate of Return (IRR) and Internal Rate of Return (IRR) should the company expect over the next five years?Is the NPV of the project worth the investment?What is the profitability index of this project?