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An electronics firm is considering purchasing an advanced machine costing $700,000 with a lifespan of 6 years and no salvage value. The machine is expected
An electronics firm is considering purchasing an advanced machine costing $700,000 with a lifespan of 6 years and no salvage value. The machine is expected to produce annual net operating income after depreciation of $160,000. The firm’s tax rate is 35%. The discount factors are:
Discount Rate | Present Value Factor |
6% | 4.917 |
8% | 4.623 |
10% | 4.355 |
12% | 4.111 |
14% | 3.889 |
You need to:
- Calculate the annual depreciation.
- Determine the annual after-tax net cash flows.
- Compute the NPV for each discount rate.
- Identify the IRR.
- Advise on the project based on NPV and IRR analysis.
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