Your company is considering a project that will require the purchase
Question # 00551863
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Updated on: 06/24/2017 11:55 PM Due on: 06/25/2017
6. Your company is considering a project that will require the purchase of a $100,000 machine. The project has a 4-year life.
The company uses straight-line depreciation to a zero book value over the life of the project. The machine has no salvage value. The project is expected to produce annual sales of $120,000 with associated costs of $70,000.
A $15,000 initial investment is required in working capital, and there is no change in working capital for the years 1-3. You recoup all of your working capital at the end of year 4.
The tax rate is 35%, and your required rate of return is 8%. Calculate the project’s NPV and IRR. Do you accept the project?
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Solution: Your company is considering a project that will require the purchase