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J. Morgan of SparkPlug Inc. has been approached to take over a production facility from B.R. Machine Company. The acquisition will cost $2,730,000, and the
J. Morgan of SparkPlug Inc. has been approached to take over a production facility from B.R. Machine Company. The acquisition will cost $2,730,000, and the after-tax net cash inflow will be $400,000 per year for 12 years SparkPlug currently uses 7% for its after-tax cost of capital. Tom Morgan, production manager, is very much in favor of the investment. He argues that the total after-tax net cash inflow is more than the cost of the capital should be 10% because of the declining demand for SparkPlug products. (Use Table 1 and Table 2) Required: I. Assume the project's after-tax cost of capital is 7%. Calculate the NPV of this project. Should Morgan accept the project? (Negative amounts should be indicated by a minus sign. Round your answer to the nearest whole dollar amount.) 2. Calculate the NPV of this project, if Cindy Morgan is correct and uses 10%. Should Morgan accept the project? (Negative amounts should be indicated by a minus sign. Round your answer to the nearest whole dollar amount.) 3(a). Use the built-in function in Excel to estimate the project's IRR. (Round your answer to 2 decimal places.) 3. Do a sensitivity analysis by using GOAL SEEK to determine, given estimated cash inflows, the original investment outlay that would result in an IRR of 10%. (Round your answer to nearest whole dollar amount.) Break-even amount
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