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Your company is interested in investing in a new die casting machine. The machine costs $120,000 and has an expected life of ten years. This machine is expected to save the company $40,000 per year in labor and utility costs, but it should incur an additional $15,000 per year in repair costs. Salvage value for the equipment is expected to be $20,000. Bonus depreciation under the Tax Reduction and Jobs Act is expected to be 60%. The equipment is classed under MACRS at a seven-year life. Inflation is expected to be 2.5% per year, and the marginal tax rate is 24%. Find Net Present Value, Internal Rate of Return, and Payback if the MARR is 14%. Is this a good investment to make?

Your company is interested in investing in a new die casting machine. The machine costs $120,000 and has an expected life of ten years. This machine is expected to save the company $40,000 per year in labor and utility costs, but it should incur an additional $15,000 per year in repair costs. Salvage value for the equipment is expected to be $20,000. Bonus depreciation under the Tax Reduction and Jobs Act is expected to be 60%. The equipment is classed under MACRS at a seven-year life. Inflation is expected to be 2.5% per year, and the marginal tax rate is 24%. Find Net Present Value, Internal Rate of Return, and Payback if the MARR is 14%. Is this a good investment to make?

Essentials Of Investments
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 interested in investing in a new die casting machine. The machine costs $120,000 and has an expected life of ten years. This machine is expected to save the company $40,000 per year in labor and utility costs, but it should incur an additional $15,000 per year in repair costs. Salvage value for the equipment is expected to be $20,000. Bonus depreciation under the Tax Reduction and Jobs Act is expected to be 60%. The equipment is classed under MACRS at a seven-year life. Inflation is expected to be 2.5% per year, and the marginal tax rate is 24%. Find Net Present Value, Internal Rate of Return, and Payback if the MARR is 14%. Is this a good investment to make?
Transcribed Image Text:Your company is interested in investing in a new die casting machine. The machine costs $120,000 and has an expected life of ten years. This machine is expected to save the company $40,000 per year in labor and utility costs, but it should incur an additional $15,000 per year in repair costs. Salvage value for the equipment is expected to be $20,000. Bonus depreciation under the Tax Reduction and Jobs Act is expected to be 60%. The equipment is classed under MACRS at a seven-year life. Inflation is expected to be 2.5% per year, and the marginal tax rate is 24%. Find Net Present Value, Internal Rate of Return, and Payback if the MARR is 14%. Is this a good investment to make?
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