Delta Construction is considering replacing once of its medium sized excavators with a larger machine. The firm anticipates the new machine will allow them to accept a greater number of projects in the future. The new excavator will cost $57,000 (inclusive of delivery) and will be depreciated using straight-line depreciation over a 6 year useful life. The old machine was purchased 2 years ago for $36,000 and was being depreciated over a period of 8 years. The current market value of the old excavator is $25,000. Delta Constructions marginal tax rate is 30 percent. If the new machine is purchased, annual revenues are expected to increase by $18,000 per annum over the new machines useful life. Annual expenses will also increase by $4,000 per annum. The new excavator is expected to be out of working order at the end of its 6 year useful life, and thus will be scrapped for free at the end of the project. Assuming the cost of capital for Delta Construction is 10 percent, calculate the internal rate of return of this project, Net Investment, and Net Cash Flow.

The correct answer of this question is IRR = 27.68%, NINV= $-31,400, and NCF = $11,300. Show step-by-step solution for each