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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 $ 62,000 and will have an eight-year service life. The selling price of the machine at the end of eight years is expected to be $ 5,000 in today's dollars. The machine will generate annual revenues of $ 22,000(today's dollars), but the company expects to have an annual expense (excluding depreciation) of $ 9,500(today's dollars). The asset is classified as a seven-year MACRS property. The project requires a working-capital investment of $ 10,000at year 0. The marginal income tax rate for the firm is averaging 25% The firm's market interest rate is 18%.(a) Determine the internal rate of return of this investment. (b) Assume that the firm expects a general inflation rate of \(5\%\), but that it also expects an \(8\%\) annual increase in revenue and working capital and a \(6\%\) annual increase in expense caused by inflation. Compute the real (inflationfree) internal rate of return. Is this project acceptable?

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