How to evaluate the project using the npv rule and the irr

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Reference no: EM132568028

You have been asked by the president of the Farr Construction Company to evaluate the proposed acquisition of a new earth mover. The mover's basic price is $200,000, and it would cost another $30,000 to modify it for special use.

Assume that the mover falls into the MACRS 5-year class, it would be sold after 4 years for $60,000, and it would require an increase in net operating working capital (spare parts inventory) of $10,000. The earth mover would have no effect on revenues, but it is expected to save the firm $50,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 25 percent and the project's cost of capital is 10 percent.

Question 1: How to Evaluate the project using the NPV rule and the IRR rule.

Reference no: EM132568028

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