Longhorn Manufacturing is considering a new machine that costs $420,000 and would reduce pre-tax manufacturing costs by $125,000 annually. Longhorn would use the straight line deprecation method to depreciate the machine to zero over its operating life, and management thinks the machine would have a salvage value of $33,000 at the end of its 5-year operating life. With the new machine, working capital would need increase by $35,000. Longhorn’s marginal tax rate is 25%, and a 10% cost of capital is appropriate for the project. a) What is the project's NPV? b) What is the project's IRR? c) What is the project's MIRR?
Longhorn Manufacturing is considering a new machine that costs $420,000 and would reduce pre-tax manufacturing costs by $125,000 annually. Longhorn would use the straight line deprecation method to depreciate the machine to zero over its operating life, and management thinks the machine would have a salvage value of $33,000 at the end of its 5-year operating life. With the new machine, working capital would need increase by $35,000. Longhorn’s marginal tax rate is 25%, and a 10% cost of capital is appropriate for the project. a) What is the project's NPV? b) What is the project's IRR? c) What is the project's MIRR?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 5P
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Longhorn Manufacturing is considering a new machine that costs $420,000 and would reduce pre-tax |
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a) What is the project's NPV? | |||||||
b) What is the project's IRR? | |||||||
c) What is the project's MIRR? | |||||||
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