Reference no: EM131657577

Please show your work

1. Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $35,200.00 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $10,300.00 per year. It would have zero salvage value at the end of its life. The firm's WACC is 15.25%, and its marginal tax rate is 35%.

What is the NPV?

Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.

2. Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 5 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $825 delivered and installed, would also last for 5 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $325 per year. It would have zero salvage value at the end of its life. The firm's WACC is 11.70%, and its marginal tax rate is 26.25%.

What is IRR?

Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.

3. The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,068,000.00, and it would cost another $21,600.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $578,500.00. The machine would require an increase in net working capital (inventory) of $7,200.00. The sprayer would not change revenues, but it is expected to save the firm $429,450.00 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 31.00%.

d. If the project's cost of capital is 12.15%, what is the NPV of the project?

Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.