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Use Excel Answer the questions. You have been asked by the president of Ellis Construction Company, headquartered in Toledo, to evaluate the proposed acquisition of
Use Excel Answer the questions.
You have been asked by the president of Ellis Construction Company, headquartered in Toledo, to evaluate the proposed acquisition of a new earthmover. The mover's basic price is $50,000, and it will cost another $10,000 to modify it for special use by Ellis Construction. Assume that the mover falls into the MACRS 3-year class. It will be sold after 3 years for $20,000, and it will require an increase in working capital (spare parts inventory) of $2,000. The earthmover purchase will have no effect on revenues, but it is expected to save Ellis $20,000 per year in before-tax operating costs, mainly labor. Ellis's marginal federal-plus-state tax rate is 30%. The cost of capital (discount rate) is 10%. Use the following 3-yeear MACRS schedule: 0.3333, 0.4445, 0.1481, and 0.0741. 1. Compute the NPV of the project. 2. Compute the IRR of the project. 3. What is your conclusion Step by Step Solution
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