Question
ChemX, Inc. is a manufacturer of chemical products with locations in the United States. Its manufacturing plant in Harrisburg, PA is considering the purchase of
ChemX, Inc. is a manufacturer of chemical products with locations in the United States. Its manufacturing plant in Harrisburg, PA is considering the purchase of a new mixing machine. The cost of goods sold will be $6,850,000 in year 1, and will increase by $200,000 each year.
The cost of the machine is $2,600,000 and it is expected to result in cost savings of 10.0% of that location's cost of goods sold over the life of the mixing machine which is 8 years.
Over the 8 years an annual investment in working capital will be required of $2,000 (needs to be input at the beginning of year). At the end of its life it can be sold for 3% of the original cost. MACRS depreciation will be used for tax purposes, which has the depreciation rate of 20%, 32%, 19%, 12%, 12% and 5% for the first six years.
The company's marginal tax rate is 25%. Management requires a rate of return on this project of 10%
REQUIRED
You are to prepare the net present value and internal rate of return, payback period, discounted payback period, profitability index of the project and recommend whether to ACCEPT or REJECT the project and WHY.
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