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What is the NPV, IRR, and MIRR when considering whether to buy new model when: Cost of capital: 11% Income taxes: 20% New model purchase
What is the NPV, IRR, and MIRR when considering whether to buy new model when: Cost of capital: 11% Income taxes: 20% New model purchase price: $2,000,000 Installation costs: $85,000 The existing asset was originally aquired and installed for: $650,000 To date, on the existing asset, claimed depreciation expenses for tax purposes: $175,000 Today the existing asset could be sold for: $450,000 At the end of the project's 5 year lifespan, after tax salvage value of the new asset would be $600,000 The after tax salvage value of the existing asset after 5 years would be: $140,000 If we take the new project, the balance sheet would change in the following ways: Accounts receivable would increase by: $75,000 Accounts payable would increase by: $120,000 Inventory would increase by: $90,000 If we take the new project, in the first year: Sales will increase by $500,000 Operating cost (excluding depreciation expense) will increase by: $150,000 For tax purposes, will will claim an additional depreciation expense of: $100,000 Interest expense will increase by $65,000 Also, if we take the new project, the operating cash flow for year 2 will be 10% greater than year 1. This pattern will continue and operating cash flow is anticipated to be 10% greater year 3 than it was in year 2, 10% greater in year 4 than in year 3, and 10% greater in year 5 than it was in year 4. Please show all work and formulas including NPV, IRR, and MIRR.
What is the NPV, IRR, and MIRR when considering
whether to buy new model when:
Cost of capital: 11%
Income taxes: 20%
New model purchase price: $2,000,000
Installation costs: $85,000
The existing asset was originally aquired and
installed for: $650,000
To date, on the existing asset, claimed depreciation expenses for tax purposes: $175,000
Today the existing asset could be sold for: $450,000
At the end of the project's 5 year lifespan, after tax
salvage value of the new asset would be $600,000
The after tax salvage value of the existing asset after 5 years would be: $140,000
If we take the new project, the balance sheet would change in the following ways:
Accounts receivable would increase by: $75,000
Accounts payable would increase by: $120,000
Inventory would increase by: $90,000
If we take the new project, in the first year:
Sales will increase by $500,000
Operating cost (excluding depreciation expense) will increase by: $150,000
For tax purposes, will will claim an additional
depreciation expense of: $100,000
Interest expense will increase by $65,000
Also, if we take the new project, the operating cash flow for year 2 will be 10% greater than year 1. This pattern will continue and operating cash flow is anticipated to be 10% greater year 3 than it was in year 2, 10% greater in year 4 than in year 3, and 10% greater in year 5 than it was in year 4.
Please show all work and formulas including NPV, IRR, and MIRR.
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