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XYZ CORP. CAPITAL BUOGET xZ wants to buay s new production machine for $20,000 Prajected cash flows (already adusted) from this investment will be $5,000, 4,000, 6,000, 6,000; and 6,000. The residual value of the machne is $50a, and the company will recelive the IRS ITC for buying the new capital equipment. The machine will require some maintenance in year 2 for $1,000, and the company can borrow from its bank at Prime plus 5 %. kthis a good investment? Regardless of your answer to this question, what is the la of this project? A8C is cansidera anw vestment that wall cost $50,000 to produce a new product that the president of the company has invented Tha marketing dapt. of the company anticipates that new cash flows from the investment will be $10,000, 12,000, 32,000, 12,000, and 10,000. Tha newly elected President of the United States, President H. Cegon, has reinstituted the old investment tas incentive for coeporations which gves an investment tax credit of 10N of the cost of an investment applicabie in the second year after implementation of the investment It will cost the company $2.000 to install the new equipment in the factory to get it going. The operations officer/engineer [Ms. Dolly Pardon) thieki that the rasidual valu. of the equipment will be$ eco ; that nartenance costs vil be S1,000 n years 2 and . only. The corporate controller says that the accounting dept has been using DDS depraciation for all new equipment. Assuming the company can sall bonds at 1% to pay for this investment, is this a good investment for the company? Whathar it is or is not, the president of the company, Andrusco Itha: inconsiderate you-know- what) wants to know what the IRR is of the new inwestment CAPITAL BUDGETING Andrusco Corp's new Vice-President of Finance, Mr. Rufus, has dscovered that a production machine suthorized for purchase last year by his fired predecessor Mr. Miranda, is not functioning well on the production floor Therefore he has decided and received approral from the company CED to replace this machine with a new one The naw machine will cost $50,000, has a five-year economic Ife, wil use 008 depreciation, and a residual valua of $5,000. The old machine was using SYD depreciation with a 5-year life, a $2,000 salvage value, and originaly cost $40,000. The old machine can be sald in today's market for $30,000. The new U. S. President, M. Romney has wisely reinstituted the imestment Tax Credit for corporations that the prior democrat, Pres. Obama, had foolshly oustlawed. New unadsated cash flows from the new equipment wil be $20,000, 10,000, 10,000, 10,000 and 15,000. Maintenance costs will be $1,000 in both years 2 and 4. A commercial crane will have to be hired to place the new equipment on the shop floor to the tune of $2,500. The company can obtan funds by seling junk bonds at 12.4 % over the arent inflation rate. is this a good decision by the Vice-President of finance? Whether Yes or No to the above question, the hard-nosed, inconsiderate CEO of the company, Pres Andrusco, wants to know what the IRR of the new investment is. XYZ CORP. CAPITAL BUOGET xZ wants to buay s new production machine for $20,000 Prajected cash flows (already adusted) from this investment will be $5,000, 4,000, 6,000, 6,000; and 6,000. The residual value of the machne is $50a, and the company will recelive the IRS ITC for buying the new capital equipment. The machine will require some maintenance in year 2 for $1,000, and the company can borrow from its bank at Prime plus 5 %. kthis a good investment? Regardless of your answer to this question, what is the la of this project? A8C is cansidera anw vestment that wall cost $50,000 to produce a new product that the president of the company has invented Tha marketing dapt. of the company anticipates that new cash flows from the investment will be $10,000, 12,000, 32,000, 12,000, and 10,000. Tha newly elected President of the United States, President H. Cegon, has reinstituted the old investment tas incentive for coeporations which gves an investment tax credit of 10N of the cost of an investment applicabie in the second year after implementation of the investment It will cost the company $2.000 to install the new equipment in the factory to get it going. The operations officer/engineer [Ms. Dolly Pardon) thieki that the rasidual valu. of the equipment will be$ eco ; that nartenance costs vil be S1,000 n years 2 and . only. The corporate controller says that the accounting dept has been using DDS depraciation for all new equipment. Assuming the company can sall bonds at 1% to pay for this investment, is this a good investment for the company? Whathar it is or is not, the president of the company, Andrusco Itha: inconsiderate you-know- what) wants to know what the IRR is of the new inwestment CAPITAL BUDGETING Andrusco Corp's new Vice-President of Finance, Mr. Rufus, has dscovered that a production machine suthorized for purchase last year by his fired predecessor Mr. Miranda, is not functioning well on the production floor Therefore he has decided and received approral from the company CED to replace this machine with a new one The naw machine will cost $50,000, has a five-year economic Ife, wil use 008 depreciation, and a residual valua of $5,000. The old machine was using SYD depreciation with a 5-year life, a $2,000 salvage value, and originaly cost $40,000. The old machine can be sald in today's market for $30,000. The new U. S. President, M. Romney has wisely reinstituted the imestment Tax Credit for corporations that the prior democrat, Pres. Obama, had foolshly oustlawed. New unadsated cash flows from the new equipment wil be $20,000, 10,000, 10,000, 10,000 and 15,000. Maintenance costs will be $1,000 in both years 2 and 4. A commercial crane will have to be hired to place the new equipment on the shop floor to the tune of $2,500. The company can obtan funds by seling junk bonds at 12.4 % over the arent inflation rate. is this a good decision by the Vice-President of finance? Whether Yes or No to the above question, the hard-nosed, inconsiderate CEO of the company, Pres Andrusco, wants to know what the IRR of the new investment is