Longhorn Manufacturing is considering a new machine that costs $420,000 and would reduce pre-tax manufacturing costs by $125,000 annually. Longhorn would use the straight line deprecation method to depreciate the machine to zero over its operating life, and management thinks the machine would have a salvage value of $33,000 at the end of its 5-year operating life. With the new machine, working capital would need increase by $35,000. Longhorn’s marginal tax rate is 25%, and a 10% cost of capital is appropriate for the project. a) What is the project's NPV? b) What is the project's IRR? c) What is the project's MIRR?
Longhorn Manufacturing is considering a new machine that costs $420,000 and would reduce pre-tax manufacturing costs by $125,000 annually. Longhorn would use the straight line deprecation method to depreciate the machine to zero over its operating life, and management thinks the machine would have a salvage value of $33,000 at the end of its 5-year operating life. With the new machine, working capital would need increase by $35,000. Longhorn’s marginal tax rate is 25%, and a 10% cost of capital is appropriate for the project. a) What is the project's NPV? b) What is the project's IRR? c) What is the project's MIRR?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 5P
Related questions
Question
Longhorn Manufacturing is considering a new machine that costs $420,000 and would reduce pre-tax |
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a) What is the project's NPV? | |||||||
b) What is the project's IRR? | |||||||
c) What is the project's MIRR? | |||||||
![Longhorn Manufacturing is considering a new machine that costs $420,000 and would reduce pre-tax manufacturing costs
by $125,000 annually. Longhorn would use the straight line deprecation method to depreciate the machine to zero over its
operating life, and management thinks the machine would have a salvage value of $33,000 at the end of its 5-year
operating life. With the new machine, working capital would need increase by $35,000. Longhorn's marginal tax rate is
25%, and a 10% cost of capital is appropriate for the project.
a) What is the project's NPV?
b) What is the project's IRR?
c) What is the project's MIRR?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9a670ca7-8bea-4835-b14f-d42c1bdbe3d1%2F71970315-f953-44b5-a4f8-87a886218f38%2F122ywip_processed.png&w=3840&q=75)
Transcribed Image Text:Longhorn Manufacturing is considering a new machine that costs $420,000 and would reduce pre-tax manufacturing costs
by $125,000 annually. Longhorn would use the straight line deprecation method to depreciate the machine to zero over its
operating life, and management thinks the machine would have a salvage value of $33,000 at the end of its 5-year
operating life. With the new machine, working capital would need increase by $35,000. Longhorn's marginal tax rate is
25%, and a 10% cost of capital is appropriate for the project.
a) What is the project's NPV?
b) What is the project's IRR?
c) What is the project's MIRR?
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