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Mountain Company is planning to add robotics to the manufacturing facility. The cost of the robots is expected to be 54,900,000. The equipment falls into
Mountain Company is planning to add robotics to the manufacturing facility. The cost of the robots is expected to be 54,900,000. The equipment falls into the 7 year IRS depreciation range (use straight line full year every year) and is expected to provide annual cash cost savings totaling $1,0000,000 over each of the next 6 years at which time the used equipment is expected to be sold for $650,000. AT the end of year 3 a required software update costing $60,000 will be made. The upgrade cost is fully tax deductible at the end of year 3 . The firm is in the 35% tax bracket. Management has decided to use a 14% hurdle rate, as a first pass, to examine the financial viability of the project. (a) Prepare a well organized schedule that concludes with the calculation of the expected NPV from this project. (b) Is the project's IRR more or less than 14% ? How do you know? (c) Give or take a 2 point range (for example 6%8% ) where is the project's IRR
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