Janes, Inc. is considering the purchase of a machine that would cost $430,000 and would last for 6 years, at the end of which, the machine would have a salvage value of $47,000. The machine would reduce labor and other costs by $109,000 per year. Additional working capital of $4,000 would be needed immediately, all of which would be recovered at the end of 6 years. The company requires a minimum pretax return of 17% on all investment projects. (Ignore income taxes in this problem.)
(a) Determine the net present value of the project.
(b) Calculate the IRR for this project.© BrainMass Inc. brainmass.com June 4, 2020, 2:12 am ad1c9bdddf
Please refer attached file for better clarity of tables and formulas.
Cost of Machine=Po=$430,000.00
Savings in labor and other costs=OS=$109,000.00
Additional Capital required=W=$4,000.00
Cost of capital=17%
Let us summarize the problem.
Year End Cost of machine Cost savings Additiona working capital Salvage Value Net cash flow PV @17%
n Po OS WC S ...
Solution calculates NPV and IRR in the given case.