Reference no: EM132960812

Problem 1: A company is considering purchasing equipment costing $120,000. The equipment is expected to reduce costs from year 1 to 3 by $35,000, year 4 to 7 by $15,000, and in year 8 by $5,000. In year 8, the equipment can be sold at a salvage value of $23,000. Calculate the internal rate of return (IRR) for this proposal.

Problem 2: A company is considering a project that will require a cost outlay of $30,000 per year for four years. At the end of the project, the company expects to salvage the physical assets for $30,000. The project is estimated to yield net returns of $60,000 in Year 4, $40,000 in Year 5, and $20,000 for each of the following five years. Alternative investments are available yielding a rate of return of 14%. Compute the net present value of the project.

Problem 3: A company has to make a decision about expanding its production facilities. Research indicates that the desired expansion would require an immediate outlay of $100,000 and an outlay of a further $20,000 in 6 years. The net cash returns are shown below. Find the net present value of the project. According to the net present value criterion, should the expansion project be undertaken if the required rate of return is 10%?

Year 1 to Year 7 $18,000 per year
Year 8 to Year 11 $15,000 per year