Reference no: EM132833958

The Morticia Casket Company is considering the purchase a new polishing machine. The existing machine cost $100,000 three years ago and is being depreciated on a straight-line basis over seven years. Morticia's management estimates that it can sell the old machine for $60,000. The new machine costs $150,000 and would be depreciated using MACRS for a five-year class life. At the end of the fifth year, Morticia's expects to be able to sell the new polishing machine for $75,000. The new machine is expected to make caskets so shiny and attractive, that revenues will increase by $15,000 per year for five years. The new machine is also expected to increase investment in net operating working capital by $12,000 at the beginning of the project, though working capital will return to prior levels when the new machine is sold. The marginal tax rate is 40%. The cost of capital for the project is 13%.

Problem 1: Evaluate the project using MIRR