A manufacturing company is considering investing in a new machine with the following details:

• Purchase price: $1,000,000
• Expected useful life: 10 years
• Salvage value: $100,000
• Annual savings from the machine: $180,000
• Tax rate: 25%
• Depreciation: Straight-line method
• Discount rates and corresponding factors:
  • 6%: 7.360
  • 8%: 6.710
  • 10%: 6.145
  • 12%: 5.650
  • 14%: 5.216

Requirements:

1. Compute the net present value (NPV) at an 8% discount rate.
2. Calculate the internal rate of return (IRR).
3. Determine the payback period.
4. Calculate the profitability index (PI).
5. Assess the impact on NPV if the annual savings decrease by 10%.

1. Question