You are the CEO of Blue and Gold Furniture Company (a household goods manufactur

Question

You are the CEO of Blue and Gold Furniture Company (a household goods manufacturing firm) and have just been briefed on some promising new production machinery which will enable 3D printing of numerous types of personalized furniture. Projected cash flows detailed below. The 3D printer has a 5 years life cycle, with no scrap value. Discuss your assessment of this project's viability and profitability. Calculate payback period, total return on investment, internal rate of return, and net present worth. State any assumptions (i.e. Minimal attractive rate of return). Explain your reasoning behind those assumptions.

Explanation / Answer

Payback Period = Initial iNvestment /cash flow per period

Paybackperiod = 2 years+([1000000 / 1000000])

Payback period = 2years +0.1

Payback period = 2.01 years

Total Return on Investment = (Gain from Investment - Cost of Investment)/Cost of Investment

Total Return on Investment =(41950000 - 10000000)/10000000 = 3.20%

NPV = (Initial Investment)+ cash flow1/(1+r)^1+cash flow 2/(1+r)^2+cash flow3/(1+r)^3..Cah flown/(1+r)^n

NPV = (10000000) +4000000/(1+0.03)^+5000000/(1+0.03)^2+10000000/(1+0.03)^3+11000000/(1+0.03)^4+11000000/(1+0.03)^5

NPV = (10000000) +37009945

NPV = $27009945

According to the above calcualtions , the Project should be accepted

0 10000000 (10000000) 2016 4000000 (6000000) 2017 5000000 (1000000) 2018 10000000 9000000 2019 11000000 20000000 2020 11000000 31000000

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