ABC Inc. wishes to buy new machinery that would cost $166,000, but it would lead to increased output, higher sales, and
Posted: Fri Jul 01, 2022 7:46 am
ABC Inc. wishes to buy new machinery that would cost $166,000,but it would lead to increased output, higher sales, and highercosts. Moreover, the firm would receive $100,000 after taxes forthe old machine. The new machine would result in sales of $120,000per year versus old sales of $70,000, and the new costs would be$40,000 versus old costs of $20,000. Finally, the old machine wasbeing depreciated at the rate of $10,000 per year, but the newmachine would have $30,000 of annual depreciation. The marginal taxrate is 25 percent and WACC is 10 percent. Based on these figures,and assuming the new and old machines both have a life of fouryears, find the incremental cash flows. What is the NPV andIRR?