What is the machine irr, The machine is expected to have a

What is the machine irr

Assignment Help Finance Basics

Reference no: EM13300671

This is a practice problem and I am not able to come up with the answer the prof. gives. Please help with a step by step on how to figure this out either with a financial calculator or on an Excel spreadsheet.

Gorton Industries is considering the purchase of a new machine which will cost $120,000, plus an additional $7500 to ship and install. The new machine will have a 5 year useful life and will be depreciated to zero using the straight line method. The machine is expected to generate new sales of $25,000 per year and is expected to save $17,000 in labor and electrical expenses over the next 5 years. The machine is expected to have a salvage value of $30,000. Gorton's income tax rate is 40%. What is the machine's IRR?

I know that the initial outlay is $127,500 (machine +ship and install)
Depreciation is 127,500/5 = $25,500 per year for 5 years
There would be an offset in operating expenses of $3400 per year due to the $17,000 savings in labor and electrical.
Then there is the salvage at year 5 which changes the tax and operating cash flow.

Reference no: EM13300671

Questions Cloud

Explain what is the ph of a buffer that results nahco2 : What is the pH of a buffer that results when 0.40 mol NaHCO2 is mixed with 100.0 mL of 2.00 M HCl and diluted with water to 250 mL (Ka of HCO2H=1.8*10^-4.

Define a mixture of compound x and its enantiomer : A mixture of Compound X and its enantiomer are placed in the polarimeter and the observed rotation is -5.1 degrees. Which enantiomer is in excess (+ or -)? Calculate the enantiometric

How many bottles of sour grapes must carr sell each year : How many bottles of sour grapes must carr sell each year to break even on an economic NPV basis? Assume the projects hurdle rate is 10%.

Calculate the q-w and the final temperature of paths : One mole of an ideal monoatomic gas initially at 300 K is expanded from an initial pressure of 10 atm to a final pressure of 1 atm. The molar heat capacity for constant volume for the gas is Cv = 3/2 R .

What is the machine irr : The machine is expected to have a salvage value of $30,000. Gorton's income tax rate is 40%. What is the machine's IRR?

Calculate the value of each investment : Alabama Power Company preferred stock with a $50 par value and a dividend of $2.8125 per year. The stock is currently trading at $39 per share.

Could apparatus be used for determing the density of liquid : The u-tube manometer has legs of unequal internal diameter d1 and d2, which are partially filled with immiscible liquids of density1, and density2 respectively and which are open to the atmosphere at the top.

Determine the values of finance companies : Evaluate how finance companies are exposed to various forms of risk. Identify the factors that determine the values of finance companies. What are the intrinsic and market risk factors and what are their affect on investment companies' performance..

Case for global accounting standards : "The case for global accounting standards" by Professor Ann Tarca (UWA) and analyse what the key points are of the report. Then prepare a report either supporting or challenging the position of the author.

User Account

All Pages