Calculate the net present value and irr of the new machine

Assignment Help Financial Management

Reference no: EM132062563

The XYZ Corporation is considering purchasing a replacement for an older machine that is being used in production. The old machine is fully depreciated, and would be sold for $45,000 at the same time the new machine is purchased. XYZ uses the straight-line method of depreciation (without regard to salvage value) for all of its machinery.

A new and more efficient machine could be purchased to replace the older machine at a price of $720,000. Initial training for employees on the new machine would cost $3,000. The new machine would produce annual cash savings of $250,000 for 6 years. At the end of 6 years, the machine could be sold for $100,000.

For depreciation purposes, the machine has a useful life of 10 years. At the end of the third year of production, the new machine would require scheduled maintenance and upgrades which costs $40,000.

Additional inventory ($45,000) and cash ($20,000) would be required, if the new machine is purchased. Corresponding accounts payable would also be anticipated ($25,000). The tax rate for XYZ Corporation is 35%. The required rate of return, annually, for the firm is 16%.

Calculate the Net Present Value and IRR of the new machine.

Reference no: EM132062563

Questions Cloud

What is the effective ytm on xyz bonds : What is the YTM (yield to maturity) of ZZZ bonds? What is the effective YTM (yield to maturity) on XYZ bonds?

Calculate the cost of goods completed and transferred : Calculate the cost of goods completed and transferred out during June using the FIFO process costing method.

Find the pseudo-american option value : The risk-free interest rate is 0.4% per month, and the stock's volatility (standard deviation) = 13% per month. Find the pseudo-American option value.

What is the maximum amount of tax deduction : What is the maximum amount of tax deduction that could be taken by XYZ corporation for contributions made to employee accounts in the year 2017?

Calculate the net present value and irr of the new machine : The XYZ Corporation is considering purchasing a replacement for an older machine that is being used in production.

What is the coupon rate of these bonds expressed annually : The market price of these bonds is $946.76. If coupons are paid semi-annually, what is the coupon rate of these bonds, expressed annually?

Calculate the required return on both stock : If you made 70% of dollar investment in stock A, and 30% of dollar investment in stock B, what would be the beta of your portfolio? Please how your work.

Policy evaluation on complementary medicine in australia : Prepare an essay on Policy evaluation on complementary medicine in Australia - Explain the situation of complementary medicine in Australia today

Determine the operating return on assets : XYZ Co. had sales in 2013 of $ 100 million, Total Assets of $ 65.000 million and the total liabilities of $ 35 million.

User Account

All Pages