Question1- 32

XYZ Co. is evaluating the purchase of a new machine that is $200,000 istalled with no NWC change. They plan to sell the machine at the end of 3 years for $20,000. MACRS 3 year. With the more efficient machine, labor savings per year are expected to be $70,000, $90,000, $80,000 respectively. 40% tax.

If cost of capital is 8% ,what is the NPV?

(1,316)

2,102

5,583

60,000

Question 2-33

XYZ Co. is evaluating the purchase of a new machine that is $200,000 istalled with no NWC change. They plan to sell the machine at the end of 3 years for $20,000. MACRS 3 year. With the more efficient machine, labor savings per year are expected to be $70,000, $90,000, $80,000 respectively. 40% tax. 8% cost capital.

What is the IRR?

10.51%

6.42%

9.39%

8.57%

Question3- 34

XYZ Co. is evaluating the purchase of a new machine that is $200,000 istalled with no NWC change. They plan to sell the machine at the end of 3 years for $20,000. MACRS 3 year. With the more efficient machine, labor savings per year are expected to be $70,000, $90,000, $80,000 respectively. 40% tax. 8% cost capital.

What is the discounted payback?

2.97 years

.97 years

2.54 years

2.97 months

Question 4-35

Your assistant has just given you some data on a potential option of working cooperatively with another company rather than purchasing the $200,000 new equipment. The details of this option are: initial investment $120,000, operating cash flows years 1-3 of$47,000, 49,000, 52,000 respectively. NOTE these OCF numbers already take into account depreciation effect and terminal cash flow for this cooperative agreement so there is no need to calculate further. Cost of capital for this project is 7.5%.

What is the NPV for the new alternative?

4,515

7,980

2,210

(3,630)