1. Your firm is considering investing in an expensive piece of new production machinery. You have collected the following information: the machine will cost $500,000; installation of the machine in the factory will cost an additional $50,000. Because the new machine operates faster than the current equipment, it will be necessary to increase working capital (mostly raw material inventory) by $40,000 if the new machine is purchased.

Over its 3-year life, the machine will increase pre-tax operating revenues by $400,000 per year. It will be depreciated using the 3-year MACRS depreciation schedule (.33, .45, .15, .07) You estimate that, at the end of its life, the machine can be sold for $75,000.

Your firms cost of capital is 11.5%, and the marginal tax rate is 35%. Calculate the IRR and NPV of this machine and indicate the correct accept/reject decision.