Net present value, internal rate of return, sensitivity analysis.

(20-30 minutes) Carmelo, SA, is planning to buy equipment costing Pta 120,000,000 to improve its materials handling system. The equipment is expected to save Pta 40,000,000 in cash-operating costs per year. Its estimated useful life is 6 years, and it will have zero terminal disposal value.

The required rate of return is 14%. nju8 REQUIRED Calculate the net present value. Calculate the internal rate of return.

What is the minimum annual cash savings that will make the equipment desirable on a net present-value basis?

When might a manager calculate the minimum annual cash savings described in requirement 2 rather than use the Pta 40,000,000 savings in cash-operating costs per year to calculate the net present value or internal rate of return?