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A company is considering the acquisition of a new production machine costing $800,000. The machine has an estimated life of 7 years and no salvage
A company is considering the acquisition of a new production machine costing $800,000. The machine has an estimated life of 7 years and no salvage value. It will produce annual cash flows of $160,000. The tax rate is 35%. The present value factors for 7 years are provided below:
Discount Rate | Cumulative Factors |
9% | 5.033 |
11% | 4.712 |
13% | 4.423 |
15% | 4.160 |
17% | 3.920 |
Requirements:
- Compute the NPV at each discount rate.
- Find the IRR of the project.
- Evaluate the sensitivity of NPV to changes in discount rates.
- Discuss the feasibility of the project based on the computed IRR.
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