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A company intends to install a new manufacturing line that requires an initial investment of $1,200,000. The manufacturing line has a useful life of 10
A company intends to install a new manufacturing line that requires an initial investment of $1,200,000. The manufacturing line has a useful life of 10 years with no salvage value. It will generate annual cash flows of $200,000. The tax rate for the company is 25%. The present value factors for 10 years are provided below:
Discount Rate | Cumulative Factors |
8% | 6.710 |
10% | 6.145 |
12% | 5.650 |
14% | 5.216 |
16% | 4.833 |
Requirements:
- Calculate the NPV at each discount rate.
- Determine the IRR of the project.
- Evaluate the payback period for the investment.
- Recommend whether the investment should be made based on financial analysis.
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