Question
Procter & Gamble is evaluating the purchase of new machinery for $2,000,000. The machinery is expected to provide the following annual savings: Year 1 2
Procter & Gamble is evaluating the purchase of new machinery for $2,000,000. The machinery is expected to provide the following annual savings:
| Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
|---|---|---|---|---|---|---|---|---|---|---|
| Savings ($) | 250,000 | 260,000 | 270,000 | 280,000 | 290,000 | 300,000 | 310,000 | 320,000 | 330,000 | 340,000 |
The company's discount rate is 12%, and the machinery has an expected life of 10 years with no salvage value. The tax rate is 35%.
Required:
- Calculate the net present value (NPV) of the investment.
- Compute the internal rate of return (IRR).
- Determine the payback period for the investment.
- Analyze the impact of the savings pattern on the project's cash flows.
- Evaluate the effect of tax rate on the project's net savings.
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Introduction To Statistical Investigations
Authors: Beth L.Chance, George W.Cobb, Allan J.Rossman Nathan Tintle, Todd Swanson Soma Roy
1st Edition
1118172140, 978-1118172148
