Use this information for the next 3 questions:

Lugar Industries is considering an investment in a new machine with the following information:

Machine cost 225,000

Setup cost 25,000

Salvage value 50,000

Life 5 years

Net operating expense savings:

End of Year 1 $ 50,000

End of Year 2 $ 90,000

End of Year 3 $110,000

End of Year 4 $120,000

End of Year 5 $120,000

WACC 10%

Tax rate 40%

Assumed value of the machine

at end of 5 years is $50,000

If Lugar buys the machine, calculate the following answers. Remember to include the

impact of depreciation, taxes, and salvage value.

1.Calculate the NPV. You need to take into account depreciation, taxes and salvage value into account when

calculating this problem. Round you answer to the nearest whole number. Do not use $, commas, or

decimal points)

2.Based on the above information, calculate the IRR. Round you answer to the nearest two decimal places. Do not use %) (For example, 34.4550% would be entered as 34.46.

3.Based on your calculations, should Lugar buy the machine? yes or no