A manufacturing company is considering investing in a new machine with the following details: Purchase price: $1,000,000
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Question:
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:
- Compute the net present value (NPV) at an 8% discount rate.
- Calculate the internal rate of return (IRR).
- Determine the payback period.
- Calculate the profitability index (PI).
- Assess the impact on NPV if the annual savings decrease by 10%.
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