Question

Meadville Widgets is considering the purchase of a fully automated widget finishing machine to replace an older but still functioning but more labor

intensive model.

The machine being replaced was purchased 5 years ago for a price of $45,000.00 at which time it had an expected life of 10 years.

This machine is being depreciated by the straight line method with an anticiapated salvage value of $0.00 The current market value of this machine

is estimated to be $27,000.00.

The current machine requires one operator with an annual cost of $37,500.00 in salary and benifits.

  The replacement machine has a purchase price of $79,500, a 5 year life, and an expected salvage value of $17,000.

The new machine will require a 440 volt three phase electric service and a new concrete pad these installation expenses are $7,500.

Meadville Widgets expect the maintence costs to be $5,000 as compared to the current costs of $6,000 and the defects to be $2,000 compared to current defect costs of $4,000.

Before considering the purchase of the new machine Meadville Widgets conducted and engineering study to determine if the installation costs

would be prohibitive, this study costs $5,000. In order to undertake this project the firm will add $30,000 in debt at 11.5% and the required rate of return is 15%.

Meadville Widgets marginal tax rate is 34%

The Meadville Widgets Company
Replacement Analysis
	Old Machine	New Machine	Difference
Price	45,000	79,500	34,500
Shipping and Install	0	7,500	7,500
Original Life	10	5	5
Current Life	5		5
Original Salvage Value	0	17,000	17,000
Current Salvage Value	27,000	0	27,000
Book Value	22,500	0	22,500
Increase in Raw Materials	0		0
Depreciation	4,500	14,000	9,500
Salaries	37,500	0	37,500
Maintenance	6,000	5,000	1,000
Defects	4,000	2,000	2,000
Marginal Tax Rate	34.00%	34%	34%
Required Return	15.00%	15%	15%
Cash Flows		Period	Cash Flows
Initial Outlay	61,530	0	61,530
Annual After-Tax Savings	13,770	1	29,960
Depreciation Tax Benefit	3,230	2	29,960
Total ATCF	29,960	3	29,960
Terminal Cash Flow	17,000	4	29,960
		5	29,960
Payback Period
Net Present Value (NPV)	47,352.57
Profitability Index (PI)
Internal Rate of Return (IRR)
MIRR

Sorry there is a lot of background information, I need to find the Payback period, PR, IRR, and MIRR. I know I am limited to one question per post. If you could please help me find the MIRR, hopefully I am able to work backwards and solve the rest. Thank you

Answer 1