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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:

  1. Compute the NPV at each discount rate.
  2. Find the IRR of the project.
  3. Evaluate the sensitivity of NPV to changes in discount rates.
  4. Discuss the feasibility of the project based on the computed IRR.

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