Schultz Inc
Subject:AccountingPrice:3.86 Bought9
Schultz Inc. is deciding to automate either its Molding department or its Finishing department. Funds are only available for one automation. You must decide which department will be automated. The original cost, net cash inflows, and hurdle rates are shown below for each project. Calculate the payback period, internal rate of return, and net present value for each project. The IRR is an interest rate. Your answer should be presented with two decimal places in this format x.xx%. Then decide which department you would choose to automate based on this information. Explain your answer in the explanation box for the department you would automate. Calculations and explanations can be given on this worksheet. Formulas must be used in the answer boxes for the payback period, IRR, and NPV to receive credit. Excel formulas are perfectly acceptable.
Molding
Hurdle Rate: 7%
Original Cost: $ (925,000)
Net Cash Inflows:
Year 1 $ 372,000
Year 2 340,000
Year 3 227,000
Year 4 209,000
Year 5 199,000
Year 6 159,000
Payback period:
Internal Rate of Return:
Net Present Value:
Explanation textbox: Would you choose to automate the Molding department? Why?
Finishing
Hurdle Rate: 7%
Original Cost: $ (1,900,000)
Net Cash Inflows:
Year 1 $ 365,000
Year 2 475,000
Year 3 375,000
Year 4 275,000
Year 5 329,000
Year 6 429,000
Year 7 329,000
Year 8 279,000
Payback period:
Internal Rate of Return:
Net Present Value:
Explanation textbox: Would you choose to automate the Finishing department? Why?
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Molding department ;
- Payback period = 2.94 years
- Net present value = $312,210.10
- Internal rate of return = 19.30%
- You should choose to accumulate the molding department because the NPV is positive.
Finishing department ;
- Payback period = 5.19 years
- Net present value = 10.59%
- Internal rate of return = $259,611.25
- You should choose to accumulate the finishing department because the NPV is positive.
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