New Equipment

1. A company is planning to invest in new manufacturing equipment that will make certain processes safer for its workers and reduce costs. The cost of the equipment is $130M. The incremental cash flows after the equipment is installed are projected to be $26M in year 1, $35M in year 2, $40M in year 3, $50M in year 4 and $20M in year 5. The salvage value of the equipment at the end of year 5 is $12M. The company's WACC is 9.2%. Calculate the NPV ($M) of the investment in new equipment, including salvage value.

a. $14.98 b. $6.13 c. $9.65 d. $9.78 e. $12.04

2. Refer to the New Equipment scenario above. What is the IRR? a. 10.7% b. 11.9% c. 12.3% d. 11.5% e. 10.2%

3. Refer to the New Equipment scenario above. What is the FV ($M)? a. $14.98 b. $6.13 c. $9.65 d. $9.78 e. $12.04