Question
Hello, I need help with this questions parts 3 and 4 please. Parts 1 and 2 are correct. A firm is considering an investment in
Hello, I need help with this questions parts 3 and 4 please. Parts 1 and 2 are correct.
A firm is considering an investment in a new machine with a price of $18.08 million to replace its existing machine. The current machine has a book value of $6.08 million and a market value of $4.58 million. The new machine is expected to have a four-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $6.78 million in operating costs each year over the next four years. Both machines will have no salvage value in four years. If the firm purchases the new machine, it will also need an investment of $258,000 in net working capital. The required return on the investment is 9 percent and the tax rate is 40 percent.
What is the NPV of the decision to purchase a new machine?(Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 1,234,567.89.)
NPV881367.70$
What is the IRR of the decision to purchase a new machine?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
IRR11.16%
What is the NPV of the decision to purchase the old machine?(A negative answer should be indicated by a minus sign. Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 1,234,567.89.)
NPV$
What is the IRR of the decision to purchase the old machine?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Anegative answer should be indicated by a minus sign.)
IRR%
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