New machinery whose salvage value is expected to be zero

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ESX Ltd is planning on investing $0.2 million to purchase a new machinery whose salvage value is expected to be zero. Annual before-tax cash savings is expected to be (OCF) of $50,000 per year over 5 years. Depreciation is computed using straight line over 5 years. At the end of the investment, the machinery can be sold for $30,000. An initial investment of $240,000 in working capital is also required. Assume a tax rate of 35% and cost of capital is 10%. What the NPV and IRR of this investment? Should this investment be undertaken?

Reference no: EM131566139

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