Reference no: EM132967634

Question - The equipment will cost $680, is expected to have a working life of 4 years, and will be depreciated on a straight-line basis to a book value of zero. The equipment is expected to have a salvage value of $180 at the end of 4 years. The new equipment will improve efficiency and result in increased revenue of $870 in its first year of operation, but because of reduced efficiency from normal wear and tear, revenue will decrease by 3% (from the previous year's revenue) for each of the remaining 3 years of the equipment's life. Excluding maintenance, all other costs from operating the equipment will be $260 per year. Maintenance costs will amount to $140 in the equipment's first year of operation, and will then increase by $20 per year for the remaining 3 years of the equipment's life. The equipment will require additional net working capital of $190. The networking capital will be recovered in full after the equipment is sold at the end of its working life. The equipment will be installed in a building that is owned by the company but recently is not being used. If the project does not proceed, this building could be rented out for $190 per year. A feasibility study has been undertaken into the purchase of the new equipment. The cost of preparing the feasibility study was $200. The company has sufficient capital to undertake all positive-NVP projects. If the Payback Period method is used to evaluate projects, management's policy is that the maximum acceptable payback period is 3 years, and all cash flows in Year 0 would need to be recovered within 3 years for the project to be acceptable under this method.

Required - Calculate the NVP and IRR?