[darronusherjr]

Affinity Inc is considering a 3-year project with an initial equipment cost of $618,000. The company’s R&D department spent $50,000 in developing the process improvement. The project will not directly produce any sales but will reduce operating costs by $265,000 a year. The equipment is depreciated straight-line to a zero book value over the life of the project. At the end of the project, the equipment will be sold for an estimated $60,000. The tax rate is 34 percent and applies to both regular income and capital gains/losses. The project will require an increase in NWC of $23,000 to buy inventory for spare parts and accessories. (5 points)

a) Should this project be implemented if Affinity requires a 9 percent rate of return?



b) What is the IRR of the project?




c) If the cost of capital for Affinity were to double, how would that impact your decision?

[kcomissiong]

I noted this on your previous question, but I'll mention it here as well. The members of this site are not going to complete your homework assignment for you. What they are happy to do is to look over your work, and to help you where you are stuck. Please show what you have done so far if you'd like assistance from the members.