Your company is contemplating replacing some current machinery with more energy efficient models. You will be replacing the fully-depreciated machinery, which you could probably use two more years if you chose not to replace it. You expect the current machinery will have no value in two years. The new machinery will cost $150,000, and can be depreciated using 3-year MACRS class life. Expected yearly before-tax savings due to acquiring the new machinery amounts to about $45,000. At the end of three years, the new machinery is expected to be sold for $30,000. The cost of capital is 8 percent and the tax rate is 21 percent. Prepare a schedule of project cash flows by year. Clearly label the rows showing EBIT, OCF and Free (Total) Cash Flows. Compute the project's NPV and IRR. Do you recommend accepting or rejecting the project?
Your company is contemplating replacing some current machinery with more energy efficient models. You will be replacing the fully-depreciated machinery, which you could probably use two more years if you chose not to replace it. You expect the current machinery will have no value in two years. The new machinery will cost $150,000, and can be depreciated using 3-year MACRS class life. Expected yearly before-tax savings due to acquiring the new machinery amounts to about $45,000. At the end of three years, the new machinery is expected to be sold for $30,000. The cost of capital is 8 percent and the tax rate is 21 percent. Prepare a schedule of project cash flows by year. Clearly label the rows showing EBIT, OCF and Free (Total) Cash Flows. Compute the project's NPV and IRR. Do you recommend accepting or rejecting the project?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Your company is contemplating replacing some current machinery with more energy efficient models. You will be replacing the fully-
- Prepare a schedule of project cash flows by year. Clearly label the rows showing EBIT, OCF and
Free (Total) Cash Flows. - Compute the project's NPV and IRR. Do you recommend accepting or rejecting the project?
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