Question
Century Lab plans to purchase a new centrifuge machine for its New Hampshire facility. The machine costs $137,500 and is expected to have a useful
Century Lab plans to purchase a new centrifuge machine for its New Hampshire facility. The machine costs $137,500 and is expected to have a useful life of 8 years with a terminal disposal value of $37,500. Saving in cash operating costs are expected to be $31,500 per year. However, additional working capital is needed to keep the machine running efficiently. The working capital must continually be replaced, so an investment of $10,000 needs to be maintained at all times, but this investment is fully recoverable (will be cash-in) at the end of the useful life. Century Labs required rate of return is 14%. Ignore income tax in your analysis. Assume all cash flows occurs at year-end except for initial investment amounts at the beginning of the year. Century lab uses straight line depreciation for its machine.
Requirements:
1. Calculate the NET PRESENT VALUE
2. CALCULATE THE INTERNAL RATE OF RETURN ( Please write down the detailed calculation process, do not use excel)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started