Analyze the capital budget proposal

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You have been hired to assist Labriola, inc., analyze the following capital budget proposal. The five year project, if accepted, would require an initial investment in new equipment of $100,000. The equipment has a 5 year useful life and the firm wishes to maximize the depreciation tax shield. The equipment has no salvage value and will be sold at the end of the project for $6,000. The project is expected to result in $55,000 additional annual revenues, $15,000 additional annual expense, and $8,000 additional investment in working capital. Labriola has estimated the cost of capital at 11% but they are not extremely confident in that number. The company has a 40% tax rate (tax reform has not yet passed the congress). Do you accept the project? You must support your answer. Must be done in excel.

Reference no: EM131898744

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