Considering an investment project-initial investment

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Reference no: EM131049622

1. Your Company is considering an investment project that has the following information: (a) Initial investment (machine one) = $ 15,000,000. (b) The machine one will be depreciated by MACRS 3-year rates. (c) The machine one requires initial net operating working capital of $5,000,000 in year Zero. This amount will increase by $ 2,000,000 in year one and will decrease by $1,000,000 in year two. Accumulated working capital will be fully recovered at the end of year four. (d) The machine One will be dismantled and sold at the end of year four at $ 1,500,000. (e) At the end of year one the company will buy another piece of machine (machine Two) at $ 1,800,000 and will be fully depreciated by the straight line method over two years (year 2 and year 3). The machine Two will be sold at $ 200,000 at the end of year 4. (f) The weighted average cost of capital (WACC) = 18%. (g) Tax rate = 30%. (h) The operating profit (EBIT) of this project is Year EBIT 1 $ 4,000,000 2 6,000,000 3 7,000,000 a. Calculate the Net Present Value, the IRR and the MIRR of this project b. Advise your company to accept or reject this investment.

Reference no: EM131049622

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