Question

Use this information for the next 3 questions: Lugar Industries is considering an investment in a new machine with the following information: Machine cost 250,000 Salvage value 50,000 Life 5 years Working Capital $0 (no working capital needed) Net operating expense savings: End of Year 1 $ 50,000 End of Year 2 $ 90,000 End of Year 3 $110,000 End of Year 4 $120,000 End of Year 5 $120,000 WACC 10% Tax rate 40% Assumed salvage value of the machine at end of 5 years is $50,000 (You will sell this machine at the end of the project for $50,000)

Machine cost                   250,000

      Salvage value                    50,000

      Life                                    5 years

Working Capital $0 (no working capital needed)

      Net operating expense savings:

  

      End of Year 1                 $ 50,000

      End of Year 2                 $ 90,000

      End of Year 3                 $110,000

      End of Year 4                 $120,000

      End of Year 5                 $120,000

  

      WACC                                10%

      Tax rate                            40%

      Assumed salvage

value of the machine

      at end of 5 years is          $50,000 (You will sell this machine at the end of the project for $50,000)

If Lugar buys the machine, calculate the following answers. Remember to include the impact of depreciation, taxes, and salvage value.

Based on the information, the NPV of this project would be:  (Round you answer to the nearest two decimal places. For example, 45,000.78 would be entered as 45001.

Answer 1

Answer:

Based on the information, the NPV of this project would be = $57,069.56 or $57,070

IRR = 17.23 %

Workings: