A company is considering purchasing a new machine. The machine costs P50,000 and requires installation costs of P2,500. This outlay would be partially offset by the sale of an existing machine. The existing machine originally cost P10,000 and is four years old. It is being depreciated under MACRS using a five‑year recovery schedule and can currently be sold for P15,000. The existing gluer has a remaining useful life of five years. If held until year 5, the existing machine's market value would be zero. Over its five‑year life, the new machine should reduce operating costs (excluding depreciation) by P17,000 per year. Training costs of employees who will operate the new machine will be a one‑time cost of P5,000 which should be included in the initial outlay. The new machine will be depreciated under MACRS using a five‑year recovery period. The firm has a 12 percent cost of capital and a 40 percent tax on ordinary income and capital gains. Determine the The internal rate of return for the project.
A company is considering purchasing a new machine. The machine costs P50,000 and requires installation costs of P2,500. This outlay would be partially offset by the sale of an existing machine. The existing machine originally cost P10,000 and is four years old. It is being depreciated under MACRS using a five‑year recovery schedule and can currently be sold for P15,000. The existing gluer has a remaining useful life of five years. If held until year 5, the existing machine's market value would be zero. Over its five‑year life, the new machine should reduce operating costs (excluding depreciation) by P17,000 per year. Training costs of employees who will operate the new machine will be a one‑time cost of P5,000 which should be included in the initial outlay. The new machine will be depreciated under MACRS using a five‑year recovery period. The firm has a 12 percent cost of capital and a 40 percent tax on ordinary income and capital gains. Determine the The internal rate of return for the project.
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
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A company is considering purchasing a new machine. The machine costs P50,000 and requires installation costs of P2,500. This outlay would be partially offset by the sale of an existing machine. The existing machine originally cost P10,000 and is four years old. It is being depreciated under MACRS using a five‑year recovery schedule and can currently be sold for P15,000. The existing gluer has a remaining useful life of five years. If held until year 5, the existing machine's market value would be zero. Over its five‑year life, the new machine should reduce operating costs (excluding depreciation) by P17,000 per year. Training costs of employees who will operate the new machine will be a one‑time cost of P5,000 which should be included in the initial outlay. The new machine will be depreciated under MACRS using a five‑year recovery period. The firm has a 12 percent cost of capital and a 40 percent tax on ordinary income and capital gains. Determine the The internal rate of return for the project.
between 7 and 8 percent.
between 9 and 10 percent.
greater than 12 percent.
between 10 and 11 percent.
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