Should the investment be undertaken

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The Masiello Company(MC) is considering a project, which has initial investment in land and machinery of $120,000. This amount contains $70,000 investment in machinery that is subject to five-year MACRS depreciation and $50,000 investment in land. The project life is six years and at the end of six years, machinery has no market value but the land will be sold for $50,000.

The project will require an additional investment of $55,000 in net working capital(NWC) at the beginning of the project but $25,000 of NWC the will be returned to MC after six years.

The project will generate $100,000 higher sales but increases operating costs by $50,000 per year. MC falls into a 40% tax bracket and has a 10 percent cost of capital. MC capital budging guidelines is to use NPV and MIRR to make capital budgeting decision. Should the investment be undertaken? Please justify your decision.

Reference no: EM131721842

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