Question
Jefferson Products Inc. is considering purchasing a new automatic press brake, which costs $300,000 including installation and shipping. The machine is expected to generate net
Jefferson Products Inc. is considering purchasing a new automatic press brake, which costs $300,000 including installation and shipping. The machine is expected to generate net cash inflows of $75,000 per year for 8 years. At the end of 8 years, the book value of the machine will be $0, and it is anticipated that the machine will be sold for $110,000. If the press brake project is undertaken, Jefferson will have to increase its net working capital by $80,000. When the project is terminated in 8 years, there will no longer be a need for this incremental working capital, and it can be liquidated and made available to Jefferson for other uses. Jefferson requires a 10 percent annual return on this type of project and its marginal tax rate is 40 percent. Use Table II and Table IV to answer the questions. Calculate the press brake's net present value. Round your answer to the nearest dollar. $ Is the project acceptable? The project is -Select- . What is the meaning of the computed net present value figure? Round your answer to the nearest dollar. The value of the firm, and therefore the shareholders wealth, is -Select- by $ as a result of undertaking this project. What is the projects internal rate of return? Round your answer to two decimal places. % For the press brake project, at what annual rates of return do the net present value and internal rate of return methods assume that the net cash inflows are being reinvested? Round your answers to two decimal places. The net present value calculation assumes the net cash flows are reinvested at %. The internal rate of return calculation assumes the net cash flows are reinvested at %.
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