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Cost of capital for xyz

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1) XYZ Inc. is evaluating the purchase of a new machine. The cost of the machine is $500. The incremental cash flows due to the machine are expected to be as follows:

Year 1 $150

Year 2 $200

Year 3 $250

Year 4 $380

The cost of capital for XYZ is 11%.

What is the NPV of this project? _________

Based on your answer, should the project be accepted? Explain why

What is the IRR of this project? _______

Based on your answer, should the project be accepted? Explain why.

2) Green Wave, Inc. is considering the purchase of a $400 machine. The cash inflows expected from using the machine are as follows:

end of year 1 120

end of year 2 200

end of year 3 250

What is the payback for this project? (regular payback, not discounted payback)

If the firm has a policy of only accepting projects with payback of 3 years or less, should the firm accept this project?

Reference no: EM132477711

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