1. Capital budgeting Example: Forge Investment Co.
Forge Investment Company is contemplating an investment to manufacture moldings for drills. The project team has assembled the following information related to the investment. Should they invest?
Cost of machinery $350,000 plus installation and modification costs of $50,000
Project Life = 5 years; at the end of year 5, the machinery will be sold for $100,000.
Depreciation Method 7 year MACRS
Operating Costs are estimated to be 40% of sales
NWC investments are estimated to be 10% of incremental sales (i.e., the investment (recovery) at time t will be 10% of the change in sales between time t, and t+1)
The marginal tax rate is 40% and the average tax rate is 29%.

2. Capital budgeting Example: Forge Investment Co.
Forge Investment Company (Continued)
The cost of capital (required rate of return) is 12%
Sales Projections are
1 $100,000
,000
,000
,000
,000