1. You have been asked to assess a proposed project to buy a new automated assembly machine that will replace four workers. The machine will cost $315,000 to buy and install. It will also have an estimated maintenance cost of $2000 annually. The machine’s expected lifespan will be 14 years and it will have an estimated salvage value of $4500 at the end of those 14 years. The machine will save the cost of four employees, whose individual salary and benefits cost is $41,000 per year. The corporate WACC rate is 5%. What is the NPV and IRR of this cash flow? 2. You have two other project alternatives that could replace the project in Question 1. Alternative B is an internal project that has an NPV of $932,000. Alternative C is an external investment that has an IRR of 31%. Alternative A is the project described in Question 1. Which of these three mutually exclusive alternatives will you select and why?
1. You have been asked to assess a proposed project to buy a new automated assembly machine that will replace four workers. The machine will cost $315,000 to buy and install. It will also have an estimated maintenance cost of $2000 annually. The machine’s expected lifespan will be 14 years and it will have an estimated salvage value of $4500 at the end of those 14 years. The machine will save the cost of four employees, whose individual salary and benefits cost is $41,000 per year. The corporate WACC rate is 5%. What is the NPV and IRR of this cash flow? 2. You have two other project alternatives that could replace the project in Question 1. Alternative B is an internal project that has an NPV of $932,000. Alternative C is an external investment that has an IRR of 31%. Alternative A is the project described in Question 1. Which of these three mutually exclusive alternatives will you select and why?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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1. You have been asked to assess a proposed project to buy a new automated assembly machine that will replace four workers. The machine will cost $315,000 to buy and install. It will also have an estimated maintenance cost of $2000 annually. The machine’s expected lifespan will be 14 years and it will have an estimated salvage value of $4500 at the end of those 14 years. The machine will save the cost of four employees, whose individual salary and benefits cost is $41,000 per year. The corporate WACC rate is 5%. What is the NPV and IRR of this cash flow?
2. You have two other project alternatives that could replace the project in Question 1. Alternative B is an internal project that has an NPV of $932,000. Alternative C is an external investment that has an IRR of 31%. Alternative A is the project described in Question 1. Which of these three mutually exclusive alternatives will you select and why?
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