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Miami Machine Shops, Ltd . is considering purchasing a vertical drill machine. The machine will cost $ 6 2 , 0 0 0 and will
Miami Machine Shops, Ltd is considering purchasing a vertical drill machine. The machine will cost $ and will have an eightyear service life. The selling price of the machine at the end of eight years is expected to be $ in today's dollars. The machine will generate annual revenues of $ todays dollars but the company expects to have an annual expense excluding depreciation of $ todays dollars The asset is classified as a sevenyear MACRS property. The project requires a workingcapital investment of $ at year The marginal income tax rate for the firm is averaging The firm's market interest rate is a Determine the internal rate of return of this investment. b Assume that the firm expects a general inflation rate of but that it also expects an annual increase in revenue and working capital and a annual increase in expense caused by inflation. Compute the real inflationfree internal rate of return. Is this project acceptable?
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