What is the project''s irr and npv?

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Reference no: EM13154325

Maddux, inc is planning to purchase equipment worth $400,000. Delivery and setup costs will amount to $20,000. In addition, $25,000 in net working capital will be required at installation. The equipment will have a 5 years class life and will be depreciated using simplified straight line. Maddux has a marginal tax rate of 34 percent and a cost of capital of 12 percent.

The new equipment will increase the firm's revenues by $220,000 per year, decrease defects costs by $10,000 per year, and increase operating costs by $30,000 per year.

A.) Suppose Maddux keeps the equipment for 3 years and sells it for $200,000. What are the project's IRR and NPV?
B.) Suppose Maddux can only get $100,000 for the equipment after 3 years due to the rapidly changing technology. What is the project's IRR and NPV?

Reference no: EM13154325

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