Question

Big Machines is considering a 4-year project with an initial cost of $1,000,000. The project will not directly produce any sales but will reduce operating costs by $325,000 a year. The equipment is depreciated straight-line to a zero book value over the life of the project. At the end of the project the equipment will be sold for an estimated $125,000. The tax rate is 30%. The project will require $100,000 in extra inventory for spare parts and accessories. Which of the following is correct regarding acceptance of this project if Big Machines requires a 8% rate of return for investments and reinvestment on projects with this level of risk? (Note, this is not a multiple answer question.)

Yes; The NPV is $66,233.48.

No; The MIRR is 7.38%.

Yes; The MIRR is 8.96%.

No; The IRR is 7.15%.

Yes; The IRR is 10.38%.

Answer 1