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Internal rate of return and the payback period

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A company buys a machine for $500,000 and depreciates it on a straight-line basis to zero over a five- year period for tax purposes. The investment would result in pre-tax cash cost savings of $200,000 per year, for five years. At the end of 5 years, it is estimated that the machine can be sold for $75,000. The gain on the sale of the machine would be taxed at a 40% tax rate. Discount rate equals 8%. What are Net Present Value, Internal Rate of Return and the Payback Period of the investment. Is the investment in the machine attractive in economic terms?

Reference no: EM132081183

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