What is npv-mirr and irr of project if expected saving

Assignment Help Financial Management

Reference no: EM131084221

You have been asked to analyze the possibility of replacing a bocce ball machine that your company bought 5 years ago. It had an expected life of 10 years at the time of purchase and cost $1,200,000 to purchase. Your firm has been depreciating the equipment using MACR 10-year depreciation. The old machine would be sold if the project is taken on. It is estimated that it could be sold for $800,000 at that time. It is expected that if the machine is not replaced, it could be sold for $100,000 at the end of its economic life. A consultant hired by your firm has determined that the best replacement machine is made by PMBA Inc. She determined that the new machine will save somewhere between $350,000 and $450,000 a year in manufacturing costs (expected cost reduction is $400,000). The cost of the machine is $2,100,000 and has an expected life of 5 years. Even though it has a five-year life IRS guidelines allow your firm to use a 3-year MACR schedule for depreciation on the machine. The new machine will require a one-time increase in working capital of $150,000. Your firm has a tax rate of 35%, and a required rate of return on the project of 12.00%(firm’s WACC). What is the NPV, MIRR, and IRR of the project if the expected saving are obtained? What level of savings would be the economic breakeven? Assuming that the worst case is saving of $350,000, a discount rate of 13%, how does it change the results? What is the saving was $450,000, what would the results be?

Reference no: EM131084221

Questions Cloud

What is the expected return on portfolio : You own a portfolio that is 35 percent invested in Stock X, 20 percent in Stock Y, and 45 percent in Stock Z. The expected returns on these three stocks are 8 percent, 19 percent, and 15 percent, respectively. What is the expected return on the portf..

What is olympics after-tax cost of debt : Olympic Sports has two issues of debt outstanding. One is a 9 percent coupon bond with a face value of $20 million, a maturity of 10 years, and a yield to maturity of 10 percent. The coupons are paid annually. What is the before-tax cost of debt for ..

What was your total real return on investment : You bought one of Great White Shark Repellant Co.’s 9 percent coupon bonds one year ago for $780. These bonds make annual payments and mature 8 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 12 p..

What was the company interest payment-earnings before tax : For the most recent year, Seether, Inc., had sales of $447,000, cost of goods sold of $218,400, depreciation expense of $58,100, and additions to retained earnings of $50,300. What was the company's net income? What was the company's earnings before ..

What is npv-mirr and irr of project if expected saving : You have been asked to analyze the possibility of replacing a bocce ball machine that your company bought 5 years ago. It had an expected life of 10 years at the time of purchase and cost $1,200,000 to purchase. Your firm has been depreciating the eq..

What is the bond nominal yield to call : Williams Industries has a bond outstanding with 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of $1,075. What is the bond’s ..

What was his percentage return on investment : Dave bought a rental property for $725,000 cash. One year later, he sold it for $750,000. Suppose Dave invested only $105,000 of his own money and borrowed $620,000 interest-free from his rich father. What was his percentage return on investment?

How many units must be sold to break even : A manufacturer has fixed cost of $500,000 and variable costs per unit of $7.00. The final product sells for $32.00 a unit. How many units must be sold to break even? If the fixed cost increased, would the new break-even point be higher or lower? If ..

Dividend-paying stock : You hold 100 shares of Harrington Motors, a dividend-paying stock, that generated a total return for 2012 of -5.05 percent. Which one of the following must be true?

User Account

All Pages