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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:

  1. Calculate the NPV at each discount rate.
  2. Determine the IRR of the project.
  3. Evaluate the payback period for the investment.
  4. Recommend whether the investment should be made based on financial analysis.

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