1. Spend 8000 on a new machine. You think it will provide after tax cash inflows of 3500 per year for the next three years. The cost of funds is 8%. Find the NPV, IRR, and MIRR. Should you buy it? (1019.84, .1493, .1241, yes)

Question 1 is already completed below. Use to answer question 2.

1)cash outflow =- 8000

year cash inflow pv factor@8%

1 3500 .925

2 3500 .857

3 3500 .793

present value of cash inflow [= 3500*2.575 = 9019

NPV = pv of cash inflow - pv of cash outflow

1019

calculation of irr

year cash inflow pv @10% pv @6%

1 3500 .909 .943

2 3500 .826 .889

3 3500 .756 .839

pv of cash inflow 8813 9348

irr = ldr +( pv at ldr - cash outflow)/ pv at ldr-pv at hdr ]+ hdr-ldr

irr = 14.93%

calculation of mirr

year cash inflow pvf terminal ci

1 3500 1.08*1.08 4082

2 3500 1.08 3780

3 3500 3500

11362

mirr = 11362/8000)^1/3 -1

= 12.41%

PLEASE ANSWER: 2. Let the machine in number one be Machine A. An alternative is Machine B. It costs 8000 and will provide after tax cash inflows of 5000 per year for 2 years. It has the same risk as A. Should you buy A or B? (1829.42<2375.4453, 395.73<513.84, buy B)

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