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After studying the possible alternatives, management has requested that you perform an analysis of an investment opportunity. The investment opportunity entails investing in a new

After studying the possible alternatives, management has requested that you perform an analysis of an investment opportunity. The investment opportunity entails investing in a new electricity generator to replace the old one currently in use. The new machine costs $40 million, is expected to have a four-year life, and is expected to save the company $7.25 million in reduced energy costs per year due to its higher efficiency and electricity output (relative to the old machine). The new machine will also require a $1 million increase in net working capital. Assume that the investment in working capital will be recaptured at the end of the new machines life. The old generator, which is anticipated to have an additional four years of life remaining, has a current book value of $10 million, and a market value of $12 million. Assume that neither project has any salvage value at the end of year four, and that the marginal tax rate is 35%. If the discount rate (risk-adjusted cost of capital) is 9%, should you purchase the new system? Be sure to calculate the NPV, IRR, MIRR, payback, discounted payback, and BCR. Utilize straight-line depreciation for both machines. Show your calculations in TABLE form, showing how you get to the final cash flows and manually calculate the NPV, IRR, MIRR.

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