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

Question

You are the CEO of Blue and Gold Furniture Company (a small 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 year life cycle, with no scrap value. Discuss your assessment of this project?s viability and profitability. Calculate net cash flow for each year, 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

Year revenue capital expen. Net cash flow P.v Initial inv ($10,000,000) 1 ($10,000,000) 1 ($10,000,000) 2016 $4,250,000 $250,000 $4,000,000 0.909 $3,636,000 $0.833 $3,332,000 2017 $5,100,000 $100,000 $5,000,000 0.826 $4,130,000 $0.694 $3,470,000 2018 $10,100,000 $100,000 $10,000,000 0.751 $7,510,000 $0.578 $5,780,000 2019 $11,500,000 $500,000 $11,000,000 0.683 $7,513,000 $0.482 $5,302,000 2020 $11,000,000 $11,000,000 0.620 $6,820,000 $0.401 $4,411,000 NPV $39,609,000 $32,295,000 IRR= lower rate + lower rate NPV/lower rate NPV +higher rate NPV * difference in rates 10%+$39,609,000/71,904,000*10% 15.51% payback period 2+$10,00,000/$10,000,000 2.1

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