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ABC Corporation has a machine that requires repairs or should be replaced. ABC has evaluated the two options and calculated the cash flows resulting from
ABC Corporation has a machine that requires repairs or should be replaced. ABC has evaluated the two
options and calculated the cash flows resulting from each option as follows:
Option A: Repair the Machine
Option B: Buy a new Machine
You have recently been hired by ABC Corporation and your first assignment is to help them decide which
of these two options should be pursued. You would like to apply Capital Budgeting and Time Value of
Money concepts you have learnt in this class to analyze the problem and present your recommendation
to your boss, Ms Jane Austen.
Conduct the analysis by calculating the Internal Rate of Return IRR and Net Present Value NPV for
each option. The company has a Weighted Average Cost of Capital WACC of For this analysis,
your boss asked you to calculate NPV at three different discount rates: the current WACC
and
Things to turn in:
A onepage memo explaining the results of your analysis and your recommendation. The memo
should include important results of your analysis such as a summary table or graph. The memo
is limited to one page so be very selective on what information to include.
An Excel spreadsheet showing calculation of Net Present Value at the discount rates and
calculation of Internal Rate of Return.
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