Capital Budgeting Decisions

Chee Company has gathered the following data on a proposed investment project: Investment required in equipment............. $320,000 Annual cash inflows.................................. Year 1: $50,000 Year 2: 50,000 Year 3: 60,000 Year 4: 40,000 Year 5: 65,000 Year 6: 50,000 Year 7: 70,000 Year 8: 65,000 Salvage value............................................. $60,000 Life of the investment................................ 8 years Required rate of return.............................. 10% Assets will be depreciated using straight line depreciation method Required: 1. Show all calculations in good form. Answers without supporting calculations will earn zero marks. 2. Calculate the annual incremental net income for all eight (8) years. 3. Using the net present value and the internal rate of return methods, is this a good investment?