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A firm is considering an investment in a new machine with a price of $ 1 8 . 0 3 million to replace its existing
A firm is considering an investment in a new machine with a price of $ million to replace its existing machine. The current machine has a book value of $ million, and a market value of $ million. The new machine is expected to have a fouryear life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $ million in operating costs each year over the next four years. Both machines will have no salvage value in four years. If the firm purchases the new machine, it will also need an investment of $ in net working capital. The required return on the investment is percent and the tax rate is percent.
a What is the NPV of the decision to purchase a new machine? Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to decimal places, eg
b What is the IRR of the decision to purchase a new machine? Do not round intermediate calculations and enter your answer as a percent rounded to decimal places, eg
c What is the NPV of the decision to purchase the old machine? A negative answer should be indicated by a minus sign. Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to decimal places, eg
d What is the IRR of the decision to purchase the old machine? A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to decimal places, eg
Please only use a financalical calculator to solve. Be sure to list your steps.
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