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)

  

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

Based on the above information, calculate the NPV of the project along with the  IRR. (Round you answer to the nearest two decimal places. Do not use %. For example, 34.4550% would be entered as 34.46.

Answer 1

Answer: