NPV and IRR for business decision
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A local businessman decides to purchase a specialized piece of production equipment at a capital cost of $403,000. The businessman manufactures cardboard boxes, and a particular machine is essential in the production process. The firm will save annual machine leasing costs of $104,000 per year. The machine has an asset life of 6 years. The cost of capital of the bank loan required to fund the project is 11%. You have been hired as a consultant to assist the firm in determining whether to purchase this equipment. Using both NVP and IRR calculations, advise the local businessman whether the machine should be purchased or not.
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