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Terminal cash flow, payback, NPV, IRR, MIRR. Accept or reject

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Your company is evaluating new equipment that will cost $1,000,000. The equipment is in the MACRS 3-year class and will be sold after 3 years for $100,000. Use of the equipment will increae net working capital by 100,000. The equipment will save $450,000 per year in operating costs. The company's tax rate is 30 percent and its cost of capital is 10%.

Part a. Calculate the cash flow in Year 0.
Part b. Calculate the incremental operational cash flows.

Reference: MACRS Depreciation Percentages for three-year class life assets:
33% 45% 15% 7%

Part c. Calculate the terminal year cash flow.
Part d. Calculate the project's payback period.
Part e. Calculate the project's NPV.
Part f. Calculate the project's IRR.
Part g. Calculate the project's MIRR.
Part h. Investment Decision: Should the project be accepted or rejected? Why or why not?

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Solution Summary

The terminal cash flows, payback, NPV, IRR and MIRR is examined to determine whether to accept or reject the null.

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