Tyler, Inc., is considering switching to a new production technology. The cost o

Question

Tyler, Inc., is considering switching to a new production technology. The cost of the required equipment will be $3,601,677 . The discount rate is 12.08 percent. The cash flows that the firm expects the new technology to generate are as follows.

Years CF 0 $(3,601,677) 1 Tyler, Inc., is considering switching to a new production technology. The cost of the required equipment will be $3,601,677 . The discount rate is 12.08 percent. The cash flows that the firm expects the new technology to generate are as follows. The payback for the project is _______ years, and the discounted payback period is ______ years.

Explanation / Answer

Payback = 5.69 years and the discounted payback = 7.93 years

NPV = -3,601,677 + 864,803/1.1208^3 + 864,803/1.1208^4 + 864,803/1.1208^5 + 1,468,675/1.1208^6 + 1,468,675/1.1208^7 + 1,468,675/1.1208^8 + 1,468,675/1.1208^9 = 567,507.7

IRR can be calculated in Excel as 14.87%

So the answer is:

Payback = 5.69 years and the discounted payback = 7.93 years

The NPV of the project is $567,507.7, and using the NPV rule the project should be accepted.

The IRR of the project is 14.87%, and using the IRR rule the project should be accepted.

Hope this helped ! Let me know in case of any queries.

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